We will cover the following:
- Tick charts definition
- Why you need tick charts
- When to use tick charts
- Tick charts vs. Renko charts
- Tick charts vs. Volume charts
- Tick charts on SwimOrSink
What Are Tick Charts?
Tick charts are a type of chart that displays the price movements of a security, derivative, or currency in equal intervals, called “ticks.” Each tick represents a specific number of transactions or changes in the security price—the chart updates with each tick.
They are called tick charts because they use individual trades or “ticks” to plot the price action rather than a set time interval, such as one minute or one hour.
Each tick on the chart represents a specific number of trades or transactions. For example, a tick chart with a setting of “3″ would plot a new bar every time three trades or transactions have occurred.
You can use tick charts to track the price movements of stocks, futures, options, currencies, and other securities.
Day traders and other short-term traders prefer tick charts because they provide a high level of detail. They are also more responsive to rapid price changes than traditional time-based charts.
Always consult the rules and regulations of the relevant exchange or market, like the NYSE tick chart.
Why Use A Tick Chart
There are several potential benefits to using tick charts in trading:
1. Better Resolution
Since tick charts stocks plot price movements based on the number of trades that have occurred, they can provide a more detailed view of price action than time-based charts. Particularly, this is useful for traders interested in short-term trends and patterns.
2. More Accurate Representation of Market Activity
Time-based charts can be subject to distortion if there are extended periods without any trades. Tick charts, on the other hand, accurately reflect the market activity level at any given time.
3. Enhanced Sensitivity to Changes in Market Sentiment:
Tick charts can be more sensitive to changes in market sentiment because they plot price movements based on the number of trades that have occurred. It’s insightful when identifying shifts in sentiment and trade accordingly.
4. Ability to Trade at Smaller Increments
Tick charts plot price movements based on the number of trades that have occurred. Therefore, they can be helpful for traders who want to trade in smaller increments, such as scalpers or day traders.
When To Use A Tick Chart
There are a few situations where a tick chart may be handy for a trader:
1. High-Volume Markets
Tick charts can be handy in markets with a high volume of trades. A trader sees more clearly how the price is moving in response to changes in demand.
2. Short-Term Trading
Tick charts are also ideal for making trades over concise time frames, such as minutes or seconds. They can help traders identify opportunities to enter or exit a position based on short-term price movements.
A trading strategy that involves making rapid trades to profit from small price movements; that’s what Scalping is. The Tick charts enable you to see the market in greater detail and make more informed decisions about when to enter and exit trades.
Tick Charts vs. Renko Charts
The Tick chart and Renko chart can both be used to analyze and track the price movements of securities, such as stocks, currencies, and commodities. However, they differ in how they have constructed and the information they display.
A tick chart plots price movements based on the number of trades that have occurred rather than on a fixed time interval.
Each bar on a tick chart represents a certain number of trades. The stock tick chart gets updated as new trades occur. They help identify short-term price trends and patterns and scalping and day trading.
On the other hand, Renko charts are to be based on price movements rather than on the number of trades. A Renko chart consists of bricks of a fixed size, which are added to the chart as the price moves in a particular direction.
A white brick should be added to the chart if the price increases by a certain amount. You add a black brick if the price moves down by the same amount. Renko charts are ideal for identifying long-term trends and filtering out noise and volatility.
Both tick charts and Renko charts have their own advantages and disadvantages. The suitability of either depends on their trading style and the type of analysis they are trying to perform. It is also possible to use both types of charts together.
Some traders find that combining the two can provide a more complete market picture.
Tick Chart vs. Volume Chart
As established earlier, the tick chart plots the price movements of a security based on the number of trades rather than based on time.
A volume chart, on the other hand, is a chart that plots the volume of trades made in a security over a given period. The volume chart can identify trading activity trends and confirm price trends.
For example, if the price of a security is rising and the volume is increasing, it may indicate that there is strong buying activity and that the trend is likely to continue. However, if the price is rising, but the volume is decreasing, it may indicate that the trend is losing strength and could reverse.
Both tick charts and volume charts are valuable tools for traders and investors. Comparatively, they provide different types of information and can be used in different ways.
It’s important to understand the differences between the two and to use them in conjunction with other analysis tools and techniques to get a complete picture of market conditions.
Tick Chart on ThinkorSwim
To create a tick chart in ThinkorSwim, you must select the “Tick Chart” option from the chart type menu. You can specify the number of ticks you’d like to display on the chart. Add any other desired settings. The chart gets an update in real-time as new tick data becomes available.
Remember, tick charts stocks can be more volatile than other types of charts, as they are based on a relatively small number of transactions. As such, they may only sometimes provide a clear picture of the overall trend or direction of a security’s price.