What is Tick Chart in Trading: Strategies & Advantages

Tick charts offer a transformative approach to market analysis by focusing on trade performance rather than time units. This alternative method addresses the challenge of liquidity gaps in traditional time-based charts, where no trading activity occurs. Unlike regular charts, tick charts provide a more nuanced understanding of market dynamics, capturing multiple trades over extended periods. This approach facilitates improved trend observations and enables traders to track trades more effectively. By utilising tick charts, traders can identify trends, swings, or fluctuations, enhancing their comprehension of financial markets.

What is a Tick Chart? 

A tick chart is an advanced method that tracks price movements according to the number of transactions or “ticks” instead of time intervals. A new price bar on a tick chart emerges whenever a fixed number of trades occur, disregarding the time spent. As a result, the influence of low-liquidity intervals is eliminated, offering a more precise representation of market dynamics. Regardless of their travel pace, each price bar on a tick chart equals weight. To a frequent trader, these have been essential tools.

How to Use Tick Charts?

Using tick charts effectively requires a good understanding of market dynamics and the ability to interpret price movements. Here are some general steps to follow when doing tick trading:

• Determine the tick range: Depending on the security you are trading, you can choose a tick value that suits its volatility. The tick range can be higher when trading highly liquid stocks or indices and lower when trading less liquid securities. 
• Identify patterns: Scan for familiar patterns on the tick chart, including triangles, channels, support, and resistance levels that can serve as signals for entry and exit trade.
• Combine indicator: Traders may combine tick data with technical indicators such as moving averages, oscillators, or volume indicators to improve trading signals. 
• Manage risk: The most critical aspect in trading is stopping loss orders; stock trading systems require traders to create a trading plan. 

Advantages of Tick Charts

• Accuracy of Market Activity Representation: The distortion of market activity is reduced in low-liquid markets or inactivity. It is based on the number of trades executed, ensuring an accurate reflection of the market situation in time, which helps traders identify trustworthy price changes and trade setups. 
• More Accurate Trend Identification: A tick chart enables a more precise and perfect reflection of a price trend since every bar reflects an equivalent amount of trading activity. This accuracy will help a trader identify probable trend formation and reversals.
• Customisable Tracking of Trading Activity: A great feature of tick charts is their flexibility regarding the number of meaningful ticks that make up each price bar. A trader may, therefore, customise the tick value, enabling them to make the bar as large as they need. When the number of bars reduces, the chart becomes too granular and is perfect for a scalping strategy. 
• Better Trade Execution: With the knowledge a trader gets from the number of trades and the strength of a price bar, they can accurately predict the market trend, timing their purchase and sale actions.

Tick Chart Trading Strategies

• Trend Following: It enables traders to use technical analysis tools such as moving averages, trendlines, and chart patterns to spot potential trend reversals or continuations. Tick charts allow traders more clarity in terms of price movements, which helps them make better-informed decisions while entering or exiting positions. You can check out this guide for more clarity on conducting market trend analysis.
• Swing Trading: With the possibility of adjusting the tick value, traders can create tick charts adjusted to different swing trading timeframes. For short-term swings, traders can adapt an adjusted tick value to smaller swings. Simultaneously, traders who tend to implement more extended swing trading techniques can utilise tick values adjusted to the lengthier market moves. 
• Volume Analysis: Traders can include tick charts in volume analysis to better examine the strength of the price moves. When traders look at the volume associated with each price bar, they can deduce whether the move is actual or might seem fake. This analysis can give traders better insights into future price action based on the volume conviction behind the move. 
• Support and Resistance: Support and resistance levels are widely used in traditional trading due to their opportunities for possible reversals. The difference lies in the accuracy and validation of these levels. Tick chart levels receive more validation than time levels since tick chart levels are happening in real-time.

Conclusion 

Tick charts are a type of time chart that provides a unique view of trading, which can be a powerful way for a trader to spot changes in momentum, eliminate the drawbacks of time-based charting models, and adjust to differences in trade style. However, Tick charts can only be used during trading strategies if you understand market behaviour and technical analysis.