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determining tick size for tick charts
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determining tick size for tick charts

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determining tick size for tick charts

Hi all,
Feel a little dumb asking this questions. I'm a new to the world of tick charts...I was wondering is there a way to determine the appropriate tick size for a tick chart for a specific time frame? Like for e.g. what is the best tick size to represent an hour or day of a stock or future? Is it pretty much trial and error or is there a way to pick an optimal size?

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  #3 (permalink)
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Tick is tick, time is time

The answer to your questions is that you are comparing two different things. (appels with pears)

An hourly chart is a chart where a bar will be drawn, with for example open/high/low/close for a fixed period of time, in this case a fixed unit of time equal to one hour. Every hour will be a fixed unit on the chart, the time is equal on the horizontal axis. The chart can be bar, line, etc... but the horizontal scale is equal for all periods of the day.

A tick chart is base on ticks (transactions). Please don't confuse this with number of traded units, which is a volume based chart. In a tick chart, a bar (or horizontal unit) will be drawn, when the number of transactions has been achieved, the next bar will start again at zero and will close when the amount (parameter) is reached. A tick chart of 166, would draw a new bar after 166 transactions. This has a consequence that the horizontal axis will go faster during busy periods and slower during non busy period (= it takes more time to achieve the 166 ticks).

Now to come back to you question, you will now understand that the chart will look different in busy periods and non busy periods. There is no specific value that you can put. Also the value will change depending on the instrument you are looking at (eg. ES will have more frequent ticks than a contract with less volume eg : 6N new zealand dollar).

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I trade forex using tick charts. As rleplae mentioned, tick chart speed is dependent on the number of transactions flowing through. This is a major advantage of tick charts, in my opinion, as I can get a better feel for where consolidation is occurring with multiple transactions happening and where price is shooting in one direction with fewer transactions occurring.

I wanted my candles to approximate a 30 second chart so I dumped the tick data into Excel and calculated tick sizes from there. For example if you want a new candle every 30 seconds or so and there are an average of 10,000 transactions occurring every hour you'd set your tick chart to 83 ticks. =10000 ticks/(1 hour/30 seconds).

It's important to remember that this is transaction dependent (83 ticks may look like a 30 second chart on average during the London/NY crossover but may look like a 5 minute chart in the NY afternoon and a 5 second chart during major news) so make sure that you are performing your calculations on the specific instrument(s) and specific time(s) that you plan to trade. I took an average of the last 30 days to come up with my numbers with the understanding that there are times the chart will move very fast and times that it will move a lot slower.

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apmodeler View Post
Hi all,
Feel a little dumb asking this questions. I'm a new to the world of tick charts...I was wondering is there a way to determine the appropriate tick size for a tick chart for a specific time frame? Like for e.g. what is the best tick size to represent an hour or day of a stock or future? Is it pretty much trial and error or is there a way to pick an optimal size?

Many traders use Fibonacci numbers for tick bars.


Quoting 

0 1 1 2 3 5 8 13 21 34 55 89 144 233 377 610 987 1597 2584 4181 6765 10946 17711 28657.....etc

I made the move to volume base bars and make use of Fib numbers if I look a some smaller time frames. With volume bars I can know the volume with greater ease than having volume plotted in another panel on the screen.

Ron

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apmodeler View Post
Hi all,
Feel a little dumb asking this questions. I'm a new to the world of tick charts...I was wondering is there a way to determine the appropriate tick size for a tick chart for a specific time frame? Like for e.g. what is the best tick size to represent an hour or day of a stock or future? Is it pretty much trial and error or is there a way to pick an optimal size?

You can't do that because in a tick charts as mentioned earlier a bar will be sometime 5 min sometime 5s etc.

That is the main advantage of tick charts, with them you can extract time as a proxy of volatility meaning how many bars do I have per unit of time instead of what is the range of my time bar.

ATR is a lagging indicator of volatility, time analysis is a precursory indication of an increasing or decreasing volatility. That is IMO the main advantage of tick charts after the question is do you need that based on what is your trading style?

R.I.P. Olivier Terrier (aka "Okina"), 1969-2016.
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