Advantages of Data-Based Intraday Charts

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Advantages of Data-Based Intraday Charts

Many traders use intraday price charts with time periods of 5 minutes, 15 minutes, or 60 minutes. This classification indicates that at the conclusion of each set time period, one bar, whether candlestick or OHLC (open-high-low-close), will print.

Bars on a 60-minute chart, for example, will print at 9:30, 10:30, 11:30, and so on until the conclusion of the NYSE or NASDAQ regular session. This algorithm takes simply time into account, therefore volume and trade activity have no influence. When selecting the same time interval, there will always be the same amount of bars every trading day.

Data-based chart intervals enable traders to see price activity from different data intervals rather than time intervals. Data-based chart intervals include tick, volume, and range bar charts. Regardless of how much time has elapsed, these charts display a bar at the end of a defined data interval:

  • Tick charts show a certain number of transactions.
  • Volume charts show the number of shares or contracts that have traded.
  • Range bar charts show when a certain amount of price movement has happened.

Let’s take a deeper look at these data-driven chart intervals and how they may help us.

Key Takeaways

  • Data-based chart intervals are an efficient approach for traders employing technical analysis to look at price activity from a variety of intervals rather than simply time intervals.
  • Tick, volume, and range bar charts are all data-based interval charts since they all print a bar at the end of a predefined data interval rather than after a predetermined period of time has elapsed.
  • Tick charts display a predetermined number of transactions and allow traders to acquire information about market activity.
  • Volume charts display the volume of shares exchanged by market participants at any particular moment.
  • Range bar charts communicate volatility by informing traders when a certain amount of price movement has occurred.
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Tick Charts

Tick charts are useful because they provide traders with information regarding market activity. Because tick charts are based on the amount of transactions per bar, we can observe when the market is most active, or when it is slow and hardly moving. On a 144-tick chart, for example, one bar will print for every 144 transactions (trades that occur).

These trades contain both small and largeblock orders. Each transaction, regardless of size, is tallied just once. During instances of intense market activity, more bars will print. During times of low market activity, fewer bars will print. Tick charts are a simple technique to monitor market volatility.

Image by Sabrina Jiang © Investopedia2020

In contrast to time-based intraday charts that are based on a defined number of minutes (5, 10, 30, or 60 minutes, for example), tick chart intervals may be based on any number of transactions. The interval of tick charts is often generated from Fibonacci numbers, where each number is the sum of the two preceding numbers. This series’ most popular intervals are 144, 233, and 610 ticks.

Volume Charts

Volume charts are primarily based on the number of shares or volume traded. Because they reflect the actual amounts being exchanged, these bars may give much more insight into market movement. We may study how rapidly a market is moving by observing how many (and how quickly) bars are printed, similar to tick charts.

On a 1,000-volume chart, for example, one bar will appear for every 1,000 shares moved, regardless of transaction size. In other words, a single bar may consist of numerous smaller transactions or a single bigger transaction. As soon as 1,000 shares have exchanged, a new bar starts to print.

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Image by Sabrina Jiang © Investopedia2020

Volume intervals should be understood in relation to the trade symbol and marketplaces under consideration. When used to equities or exchange-traded funds (ETFs), the volume interval will refer to shares, contracts when applied to futures/commodities markets, and lot sizes when applied to currency.

Volume intervals are often adjusted to an individual symbol’s attributes since equities that trade at a greater volume need a wider interval to give appropriate charting analysis. Greater numbers (such as 500, 1,000, and 2,000) and larger Fibonacci intervals are common intervals for volume charts (such as 987, 1,597, 2,584, etc).

Range Bar Charts

Range bar charts are based on price movements and assist traders to assess market volatility. A 10-tick range bar chart, for example, will produce one bar per 10 ticks of price fluctuation. So, in this example, if a new bar begins at 585.0, it will remain active until the price hits 586.0 (10 ticks up) or 584.0 (10 ticks down) (ten ticks down).After 10 ticks of price change, the bar will shut and a new bar will start. By default, each bar closes at either its high or low when the required price movement is met.

Image by Sabrina Jiang © Investopedia2020

The use of range bar charts has the advantage of printing fewer bars during times of consolidation, decreasing market noise found with other styles of charting. These bars provide the same price information as time-based intervals, enabling traders to pinpoint entry more precisely.

Choosing a Data Interval

Choosing the appropriate period is determined by your trading strategy. Consider greater data intervals if you want to make bigger movements and remain in a position for a longer period of time. Consider short data intervals if you trade for smaller movements and want to get in and out of positions rapidly. There is no optimum setup that accommodates every trading style and personal choice. The illustration below compares tick, price, and range bar charts.

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The Bottom Line

Data-based chart intervals may be useful since they enable market participants to examine charts that are not driven by time. These charts, like any trading tools, must be configured to meet the market participant’s particular trading style and techniques. Traders may find it useful to experiment with multiple data kinds and intervals to discover the ideal combination for their approach.

Investopedia does not provide tax, investment, or financial advice. The material is offered without regard for any individual investor’s investing goals, risk tolerance, or financial circumstances, and may not be appropriate for all investors. Investing entails risk, including the possibility of losing money.

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