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Best volume indicator when using Tick Charts in NinjaTrader
I'm starting to use Tick charts instead of Time charts in NinjaTrader for ES, NQ and TF (Please view the attached file as an example of the benefits of Tick vs. Time).
So, the questions are:
1) What is the best Volume indicator to use when using Tick charts? Does the NinjaTrader version of TradeStations Better Volume indicator best fit the application and/or are there others?
2) How do I setup NinjaTrader (version 7.0.1000.7) to allow selection of Tick intervals instead of (or along with) Time intervals in the pull down menu in the Charts? Currently, as we all know, Time interval selections are the default choice.
* If investing gets too difficult for a seventh grader to understand, the system is needlessly complex
* Markets produce an enormous volume of information, much of which is redundant
* In every game and con there's always an opponent, and there's always a victim. The trick is to know when you're the latter, so you can become the former
Thank you for having posted this question, it is an interesting one. I just had a look at the paper from e-mini watch, to see whether I can understand the five arguments put forward:
(1) As each bar is built from the same number of ticks, volume just indicates average trade size, nothing more and nothing less. That is quite an important statement, as high volume indicates a higher percentage of larger traders (dibbed the professionals).
(2) Argument is the same as argment (1).
(3) The tick chart is faster, when the market moves and is slower when the market does not move. The bars have a momentum compensation, meaning that a fixed period momentum indicator on a tick chart will not givesignals as clear as on a time based chart. However, if you trade bar by bar, the tick chart will give you earlier signals during breakouts.
Very true.
(4) Tick charts provide more cyclical information? The evidence produced refers to a single indicator and I would not follow this argument.
(5) Tick charts compress low activity periods and avoid whipsaws. Without any doubt.
But now back to the question on volume indicators:
Volume information on tick charts has an entirely different meaning
On minute charts volume measure partipation of traders per time unit, on tick charts volume measures trade size.
How does this affect the use of a BetterVolume indicator?
The Better Volume indicator relies on volume and range analysis. Point (3) above makes clear that during a breakout, you will get an earlier signal using tick charts. Earlier signal also means that the breakout bar has a smaller range, so the BetterVolume indicator cannot properly identify climax bars. This is particularly true for instrument, for which there is no enormous variation of the trade size.
Below is an example for the Better Volume indicator applied to both tick and minute charts. I have labelled 7 signals for churn bars that could be detected.
Better Volume on Minute Data detects 6 signals, out of which 4 were tradeable. Better Volume on Tick Data detects three signals, out of which only 1 (signal 7) was tradeable. Tre tradeable signal was detected one bar later than on the minute bars.
Conclusion: You cannot use the Better Volume indicator on tick charts.
What went wrong?
The Better Volume indicator detects two types of situations.
(1) Wide ranging climax and breakout bars with high volume. On a tick chart, both volume and range is levelled out. The signals are weak or non-existant. Here we need to go back to the basics. Wide ranging means that price moved a considerable distance in a short period of time, or otherwise put, that momentum picked up considerably. To show this effect on a tick chart, we would need to divide the range of the bar by the difference calculated from the timestamp of the bar and the timestamp of the previous bar. This can be done, but requires a new indicator.
(2) Churn bars indicate a high participation of traders without an adequate price move. As can be seen on the chart, the churn bars cannot be detected either. So again you would need to recode the indicator to allow for detection of churning,.
Conclusion: As it is coded now, the Better Volume indicator can be pretty useless on tick charts.
Is there an indicator that actually plots the volume as a wave separately, as in, not attached to price as Weis wave is? This will actually visually show divergences, instead of having to imagine them. Also, On Balance Volume and Delta Volume do NOT necessarily show true divergence, as for instance a high volume pull back. Because the volume attributed to each bar\tick could very well cancel each other out, which would only show a low volume delta\OBV pullback. So something different is needed! A Weis wave plotted separately from price!
