Tick Charts: 5 Compelling Reasons to Use Tick Charts

UPDATED: Tuesday 29 June 2021

Tick Charts are one of my “secret weapons” and this article explains why.

Tick Charts are not very well known and can be confusing. From time to time I get questions about Tick Charts and yesterday’s email from Ken was typical:

I’ve been scouring the Internet for information on tick charts and their ins and outs – but have found nothing useful. Can you please point me to a good source of information with a decent explanation? Ken

Well I consider myself a little bit of an expert on Tick Charts, so here goes. Use the links below to jump to a particular section:

What is a Tick Chart?

A Tick Chart draws a new bar after a set number of trades, for example after every 500 trades. Conventional (i.e. time-based) charts draw a new bar after a set period of time, for example after every 5 minutes.

Don’t get confused with the NYSE TICK Index (or $TICK in many charting programs). The NYSE TICK Index is a totally different thing. It measures the number of stock issues trading on an uptick versus a downtick. A Tick, by contrast, is just a trade and 1 Tick = 1 trade.

I much prefer Tick Charts over conventional, time-based charts. Here are my 5 reasons why.

5 Advantages of Tick Charts

#1 Tick Charts allow you to follow the Professionals

Large Average Trade Size = Professional Activity

The Emini is a perfect trading vehicle because we know the number of contracts in each individual trade. So on a Tick Chart when we plot volume we see the total number of contracts traded during those last say 100 trades. The relative size of the volume histogram shows us the average trade size. Let’s take an example.

If during the last 100 trades the average number of contracts in each individual trade was 2, the volume histogram would show a value of 200. However, if during the last 100 trades the average number of contracts in each individual trade was 25, then the volume histogram would show a value of 2,500. So if the volume histogram is low we are seeing Amateurs trading and if the volume histogram is high we are seeing Professionals.

The 2,097 Tick Chart above has some of the high value bars highlighted – these show large average trade sizes or Professionals. As you can see, you want to follow the Professionals. They were buying the dips and shorting the rallies.

#2 Tick Charts allow you to fade the Amateurs

Small Average Trade Size = Amateur Activity

Similarly, looking out for low value bars allows you to identify what the Amateurs are doing. The 2,097 Tick Chart above is exactly the same as the previous chart but with some of the low value bars highlighted. These show small average trade sizes or Amateurs. As you can see, you want to fade (i.e. do the opposite of) the Amateurs. They were shorting the dips and buying late into the rallies.

Now I think that information alone would be reason enough to use Tick Charts, but there’s more …

#3 Tick Charts let you get a jump on breakouts

Tick Charts Are Quicker Into Breakouts

If you’re waiting for the close of a bar to enter a trade, say a breakout, a Tick Chart will get you in earlier. The Emini trading chart above illustrates the point. The Emini spiked up on FOMC-related news. Using a Tick Chart you could see the surge in activity and enter at the bar’s close – say 779. With say a 3 minute chart the entry on close would have got you in closer to 784 – or 5 points worse off!

Hi Barry, I used to use 1 min, 5 min, 15 min charts etc. but found time to be inadequate due to changes in volatility. I would be profitable for 2 months and then boom, volatility spikes up and all of sudden, my trading is not good. Switching to 1500 tick and 4500 tick has completely masked the volatility differences and allows me to trade more consistently regardless of the volatility. John G.

#4 Tick Charts let you “see” more cyclical information

Tick Charts Have More Cycle Information

A Tick Chart will also allow you to “see” more trade information and work particularly well with cycle analysis. In the example above, the Better Sine Wave, my preferred cycle analysis tool, was able to pick out a Pull Back long entry point in the 2,097 Tick Chart. However, with the 3 minute chart the Pull Back was completely missed.

#5 Tick Charts compress low activity periods

Tick Charts Compress Low Activity Periods

Lastly, a Tick Chart compresses low activity periods, like lunch time, after-hours and overnight trading. This reduces whipsaws and allows more “continuous” analysis between days, with trades setting-up pre-open on a Tick Chart. Or fewer false break-out trades during lunch time.

What Tick Chart settings to use

tick chart settings needed to be recalculated after the CME changes in October 2009
Tick chart settings needed to be recalculated after the CME changes in October 2009

Over the years the CME has changed their definition of a Tick (or trade) in the Globex data feed. And at times this has created some anxiety for traders who rely on Tick Charts.

If a buyer steps in and picks up 3 orders each of 5 contracts sitting at the Ask, he is viewed as the ‘aggressor’ and in a ‘bundled‘ data feed this would be shown as: 1 trade for 15 contracts done at the Ask. In an ‘un-bundled‘ data feed this would be shown as: 3 trades each for 5 contracts done at the Ask.

In October 2009 the CME “un-bundled” trades, resulting in the average trade size dropping from approx. 11 to 5 contracts (see the chart above). Before the change my Emini chart setup used 233, 699 and 2,097 Tick Charts. 233 is a Fibonacci number and that’s why it was my starting point. After the change I switched to my current chart settings of 500, 1,500 and 4,500 Ticks.

In December 2014 the CME announced even more changes – an update called MDP 3.0. It took the data feed providers all of 2015 to sort out how to handle this update and there were some heart stopping moments along the way. In the end it was all a ‘storm in a teacup’ and there was no need to change the 500, 1,500 and 4,500 Tick Chart setup.

You can read some of the details in these update panels below:

Update May 2015 – CME changes Tick Chart data (again!)

The CME introduced a new data feed protocol in December 2014 and all data feed providers have to implement it by October 2015. So far only CQG/Continuum has switched over but TradeStation has announced they will switch in August 2015 and other data providers will follow suit.

The new data feed appears to revert back to the pre-October 2009 situation (or close to it), with trades “bundled” and allocated to the “aggressor”. The “un-bundled” order details appear to still be available in the raw data feed but this information might be ignored by data feed providers when they disseminate their data. You can read more about the details in this forum thread.

The result is that the average Emini trade size has increased by a factor of approx. 3.1 (based on CQG and TradeStation data for Tuesday 26 May 2015). So if you use CQG/Continuum data you might want to change your Emini Tick Charts to: 150, 450 and 1,350 Ticks.

Update December 2015 – MDP 3.0 was a ‘storm in a teacup’

The new CME data feed (MDP 3.0) turned out to be a ‘storm in a teacup’.

The early mover, CQG/Continuum, switched back from bundled to un-bundled data after, what I assume was, trader outcry. All the data providers, except eSignal, seem to have adopted un-bundled data and there appears to be almost no difference between pre- and post-MDP 3.0 data. The average trade size is virtually identical and Better Pro Am continues to identify Professional and Amateur activity.

If you are an eSignal user, we recommend using a 200 Tick bar chart instead of a 500 Tick bar chart, etc. The bundling of data appears to add a factor of 2.5 with Tick Charts. Otherwise, no changes are required to Tick Chart settings. 馃檪

Best Tick Chart for Emini day trading

The three best Tick Charts for Emini day trading are the 500 Tick, 1,500 Tick and 4,500 Tick Charts. I use these in my multiple time frame (MTF) analysis of the Emini. The lowest timeframe (500 Tick) is great for timing an entry or exit. The intermediate timeframe (1,500 Tick) is great for identifying the trend direction. And the highest timeframe (4,500 Tick) allows you to see the big picture.

An even better Emini “continuous” contract symbol to use

TradeStation, by default, “rolls” the price and volume data on the 7th day before contract expiry. The 7th day is still the most active contract, so I prefer “rolling” the data on the next day, the 6th day before contract expiry.

To do that use these contract symbols:
For the day and night session of the Emini use: @ES=106XC
For the day session only of the Emini use: @ES.D=106XC

Best Tick Chart for Forex trading

Tick Charts are now possible for trading Forex.

With “traditional” cash Forex charts we only know the number of trades during a period of time and not the number of contracts traded. So on a Tick Chart when we plot volume there is no trade volume size. If you want volume information on a cash Forex chart you’ll have to stick with conventional time-based charts and plot Tick count as a proxy.

However, there is another option – futures Forex contracts traded on the CME. These contracts have grown quickly and are now large enough that they are representative of what happens in the cash Forex market. The advantage of these futures contracts is that complete volume data is available and Tick Charts work great.

There’s more information on using the ‘Better’ series of indicators on Forex charts here.

An even better Forex “continuous” contract symbol to use

TradeStation, by default, “rolls” the price and volume data on the 7th day before contract expiry. This does not work for Forex futures contracts, as these contracts continue to be the most actively traded until 1 day before expiry. So I prefer “rolling” the data on the day before contract expiry.

To do that use these contract symbols:
For the day and night session of the Euro use: @EC=101XC
For the day and night session of the Aussie use: @AD=101XC
For the day and night session of the Japanese Yen use: @JY=101XC

Tick Charts on different charting platforms

No two Tick data feeds are the same.

This is why you’ll never get 2 Tick Charts using different data feeds to match up exactly. On time-based charts, for example a 5 minute chart, there’s not normally a problem. The data from the exchange is time-stamped and your charting platform uses this to draw the bar.

However, with a Tick Chart, new bars are drawn based on the number of trades that have been completed – and this trade count can be:

  • Filtered by the data feed provider
  • Set to start re-counting at different starting points (e.g. midnight, open, etc.)
  • Aggregated to reduce bandwidth requirements by the data feed provider
  • Missing trades because of momentary Internet disconnects
  • Processed out-of-sequence because of multi-threading on your computer, etc.

Frustrating – I know. But that’s life in the big city. However, for me the advantages of a Tick Chart far outweigh this negative.

Tick Charts and TradeStation

I get a lot of emails from traders asking why their volume indicators don’t look right on a TradeStation Tick Chart. For example, volume histograms that are all the same height. This is easily fixed.

Fixing tick charts on TradeStation

Right click on the chart > select Format Symbol > go to the Settings tab > under ‘For Volume Use’ you’ll see a pull-down menu > change the setting from Tick Count to Trade Vol.

Now the volume indicator on your Tick Chart will reference the trade volume data instead of the Tick count data.

If your Tick Charts are slow to load, your symbol data cache might have been corrupted or become bloated. The solution is to re-build your cache – I do this every 2 to 3 weeks or as soon as I notice my Tick Charts are slow to load. The steps for re-building your cache are explained in Tip #15 here.

Tick Charts and TradingView

TradingView (developed by the makers of MultiCharts) is the future of charting software. What makes it different is that it is 100% web-based – it’s not a stand alone piece of software that has to be coded for Windows or MacOS and installed on your laptop. You just open your web browser and access the TradingView charts and indicators.

However, TradingView is not ready for “professional” trading. Yes, it has great coverage of almost all instruments and exchanges (including all the CryptoCurrencies). But it has two failings. One is that when you re-load a chart from real-time, the data can change. This is almost a fatal flaw.

Secondly, Tick Charts are not yet available on TradingView. This feature has been requested many, many times and TradingView has promised it is in the works. However, as of March 2020, Tick Charts are not available on TradingView.

Tick Charts and Interactive Brokers

The Interactive Brokers (IB) data feed available via their Trader Workstation Software (TWS) is not a true Tick-by-Tick data feed. IB provides snap shots of the trade data several times a second with an aggregate of the trades that took place during that interval. As a result time-based charts (e.g. 5 minute charts) will be correct, however, a Tick Chart constructed using IB data will not.

Summary

This article should have convinced you to use Tick Charts:

  • Professional and Amateur activity can be seen. With a Tick Chart you can judge the average trade size being traded and hence identify the Professionals and Amateurs.
  • The disadvantages of time-based charts are overcome. Tick Charts help you get a jump on breakouts, let you “see” more cyclical information and compress low activity periods.
  • Tick Charts are now possible for Forex trading. Getting complete volume data has always been a problem for Forex. The CME futures contracts for Forex are the answer.
  • Tick Charts will never match between different data providers. This is just a fact of life. It’s not ideal but in no way should dissuade you from using Tick Charts.

I hope you found this article about Tick Charts helpful.