Traders are used to seeing intraday price charts based on time intervals, such as five-minute or 60-minute charts. This means that one bar (be it a candlestick or OHLC bar) will print at the end of each specified time interval. On a 60-minute chart, for example, a bar will print at 9:30, 10:30, 11:30 and so on until the end of the trading session. Time is the only consideration; volume and trading activity have no bearing. Thus, there will always be the same number of bars per trading day when using the same time interval. (For more, read Candlesticks Light The Way To Logical Trading.)

Data-based chart intervals allow traders to view price action from various data intervals instead of just time. Tick, volume and range bar charts are examples of data based chart intervals. These charts print a bar at the close of a specified data interval, regardless of how much time has passed. Tick charts show a certain number of transactions. Volume charts indicate when a certain number of shares or contracts have traded. Range bar charts represent when a certain amount of price movement has occurred. Let's take a closer look at these data-based chart intervals and how we can use them to our advantage.

Tick Charts
Tick charts as seen in Figure 1 are beneficial because they allow traders to gather information about market activity. Since tick charts are based on a certain number of transactions per bar, we can see when the market is most active, and, likewise, we can see when the market is sluggish and barely moving. In a 144-tick chart, for example, one bar will print after every 144 transactions (trades that occur). These transactions include small orders as well as large, block orders. Each transaction is counted just once, regardless of the size. In periods of high market activity, more bars will print. Conversely, during periods of low market activity, fewer bars will print. Tick charts provide an easy means of determining market volatility.

Figure 1: Tick Interval Chart

Unlike time-based intraday charts that are typically based on a set amount of minutes (5, 10, 30 or 60 minutes for example), tick chart intervals can be based on any amount of transactions. Frequently, the interval of tick charts is derived from Fibonacci numbers (a series of numbers discovered by Leonardo Fibonacci where each number is the sum of the two previous numbers). Popular tick chart intervals are, therefore, 144-, 233- and 610-ticks. (To learn more, see Taking The Magic Out Of Fibonacci Numbers.)

Volume Charts
Volume charts as seen in Figure 2 are based solely on the amount of shares, or volume, that is being traded. These bars may provide even more insight into market action because they represent the actual numbers that are being traded. Similar to tick charts, we can get an idea of how fast a market is moving simply by noting how many (and how quickly) bars are printing. In a 1,000-volume chart, for example, one bar will print after every 1,000 shares have traded, regardless of the size of the transaction. In other words, one bar might be comprised of several smaller transactions or one larger transaction. Either way, a new bar begins to print as soon as 1,000 shares have traded.

Figure 2: Volume Interval Chart

It should be noted that volume intervals are relative to the trading symbol and markets that are being analyzed. The volume interval will relate to shares when applied to stocks or ETFs, contracts when applied to the futures/commodities markets and lot sizes when used with forex. Volume intervals are often scaled to an individual symbol since symbols that trade in higher volume require a larger interval to provide relevant charting analysis. Common intervals for volume charts include larger numbers (such as 500, 1,000, 2,000) as well as larger Fibonacci intervals (such as 987, 1,597, 2,584, etc). (For more, see Gauging Support And Resistance With Price By Volume.)

Range Bar Charts
Range bar charts, shown in Figure 3, are based on changes in price and allow traders to analyze market volatility. A ten-tick range bar chart, for example, will print one new bar each time there are ten ticks of price movement (in an instrument where price is measured in ticks; for example, the e-mini Russell). Using the 10-tick range bar example, if a new bar opens at a price of 585.0, that bar will stay active until price either reaches 586.0 (10 ticks up) or 584.0 (ten ticks down). Once ten ticks of price movement have occurred, that bar will close and a new bar will open. By default, each bar closes at either the high or the low of the bar as soon as the specified price movement is reached.

Figure 3: Range Bar Chart

A benefit to using range bar charts is that during periods of consolidation, fewer bars will print, thus eliminating some of the market noise encountered with other types of charting. Because fewer bars deliver the same price information, traders may be able to pinpoint trade entries with more precision.

Choosing a Data Interval
If you have decided to try one of the data based charting intervals in your own trading, you may be wondering where to start. Choosing the right interval depends on your style of trading. If you are looking for bigger moves and plan on staying in a trade longer, you should choose larger data intervals. If you trade for smaller moves and like to be in and out of a trade quickly, you might choose smaller data intervals. There is not one best setting; it has to do with your style of trading and personal preference. Figure 4 shows a comparison between tick, price and range bar charts.

Figure 4: Choosing a Data Interval

Conclusion
Data-based chart intervals can be beneficial because they allow market participants to see price charts that are driven by factors other than time. Market activity can be more easily recognized simply by the number of bars that are printing. As with any trading tool, these charts must be set to accommodate each trader's own style of trading. Traders may find it helpful to experiment with different data types and intervals to find the combination that best suits their trading method. These different types of charting provide a unique method of viewing the market that cannot be seen through time-based charting techniques. (For more, see Charting Markets Into The Future.)

Related Articles
  1. Trading Strategies

    Mastering Short-Term Trading

    The proper application of a few different tools can help a short-term trader succeed.
  2. Investing Basics

    Free Cash Flow Yield: A Fundamental Indicator

    Free cash flow can measure a business’s performance as if you’re looking at its net income line.
  3. Technical Indicators

    Four Commonly Used Indicators In Trend Trading

    No single indicator can punch a ticket to market riches, but here are four that remain popular among trend traders.
  4. Active Trading Fundamentals

    4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)

    Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
  5. Chart Advisor

    Uptrending Stocks Dwindle, a Few Remain (EW, WEC, WR)

    The number of uptrending stocks is shrinking, but here a few that remain in uptrends.
  6. Chart Advisor

    Trade Setups Based on Descending Trend Channels (LBTYK, RRC)

    These descending trend channels have provided reliable sell signals in the past, and are giving the signal again.
  7. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  8. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  9. Charts & Patterns

    How To Use Volume To Improve Your Trading

    The basic guidelines to analyzing volume may not apply in all situations, but overall, they can help direct entry and exit decisions.
  10. Trading Strategies

    4 Common Active Trading Strategies

    Active trading entails buying and selling securities with the intent of profiting from short-term price movements.
RELATED FAQS
  1. Why is the Arms Index (TRIN) important for traders?

    The Arms Index, also known as the TRading INdex or TRIN, is named after Richard Arms, who developed the index in 1967 as ... Read Full Answer >>
  2. How is the Arms Index (TRIN) calculated?

    The Arms Index, sometimes referred to as the TRading INdex or TRIN, is a breadth indicator developed by trader Richard Arms ... Read Full Answer >>
  3. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  4. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  5. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  6. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center