“What’s the best chart interval for day trading?”
One of the most common questions I receive is regarding the best chart interval for day trading. This question often comes into the “Ask Barry“ service.
This is a service where anyone can ask me a question about the market, technical analysis, trading, money management, etc.
You can use the form in the right column of this blog (scroll down a bit to find it). I personally respond to all questions by sending you an email, and some questions get posted in this blog.
Today’s question (which has come in several forms from several different readers):
“Yo Barry, I notice in a lot of the charts you post, you use tick charts. Does that mean your method is more for day trading than swing trading? What’s the best CHART interval for day trading? And what’s actually the difference between minute charts and ‘tick’ charts?”
Thanks to all who asked these questions. They’ve been common ones so I thought it was time to answer them publicly.
TICK CHARTS VS. TIME-BASED CHART INTERVALS FOR DAY TRADING
First, my method is definitely not more for day trading than swing trading. I’m a very active swing trader and use the same method for both swing trading and day trading.
Second, there’s no best chart interval for day trading, but there is one that’s best for YOU. Each has advantages and disadvantages. Evaluate them for yourself and choose an interval that fits your personal trading style, execution speed, degree of patience and risk tolerance.
- Faster charts give you more trades per day and can lower your risk per trade. That’s at the expense of being more “noisy” (having more meaningless and false moves). This requires you to make faster decisions since the bars finish faster, especially in fast markets.
- The slower charts (longer time-frames) grant you more time to make trading decisions. They have less “noise,” but since the point range of each bar is bigger, your risk per trade is larger. In addition, since they provide fewer trades per day, it’s easier to get “lulled to sleep” during long periods of insignificant activity.
Third, as to the difference between tick charts and minute charts, that’s going to take a little more explanation.
With most charts, each bar represents a period of time.
- On a daily chart, each bar contains all the price action of that one day, and when the next day starts, a new bar is plotted.
- With a 5 minute chart, each bar represents all the price action for 5 minutes, and when the 6th minute begins, the chart plots a new bar.
“Tick” charts are different in that each bar does not represent any particular amount of time. A “tick” is a “trade.” So every time someone places a trade, that is called a “tick.”
A 200 tick chart, then creates a bar that includes all the price action for 200 trades. Only when the 201st trade goes through the market, the chart plots a new bar.
- If the market is slow, it could take 5 minutes for 200 trades to go through the market.
- When the market is fast, it could take 30 seconds for 200 trades to go through the market.
So tick charts are a way of incorporating volume into the price bars and price formations themselves.
However, remember it isn’t really measuring volume directly because trades (“ticks”) will have varying amounts of volume. One trade could be for a single contract, and another could be for 50 contracts.
You can also plot “volume charts” in which each bar represents how many contracts (shares) each bar will represent rather than how many trades.
Which is better?
There is no objective answer to that. Each has advantages and disadvantages.
Some people prefer minute charts (1 minute, 2 minute, etc.) because they tend to form more traditional candlestick patterns.
My trading method isn’t dependent on any time interval, or whether you use minute charts or tick charts.
Personally, for day trading I use tick charts as my primary charts … but I do have a 5 minute chart that I’m always watching as well.
I personally prefer tick charts for 2 reasons:
- Tick charts tend to create more symmetrical patterns than regular minute charts. That’s because when the market is extremely slow, minute charts will continue to plot a lot of small bars that go no where. When the market is fast, it will create very long bars, because it can’t create a new bar until “time is up” (5 minutes, 15 minutes, etc.).
- Tick charts often create more narrow range bars than minute charts at turning points. This allows you to keep my risk smaller (because risk is defined by the range of the bars at cycle turning points in the market).
To see a VIDEO that demonstrates these differences in minute charts and tick charts, visit my page on YouTube at: http://www.youtube.com/profile?user=TopDogTrading
BELOW ARE A 2 MINUTE CHART AND A 200 TICK CHART OF THE SAME TIME PERIOD ON THE NASDAQ FUTURES FOR COMPARISON. Look at them and see what you think is the best chart interval for day trading.
CLICK ON THE CHARTS BELOW FOR LARGER IMAGES:
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Hello,
Well organized and full of information. Thank you for sharing… (smile)
My name is Cornel Tanady, and have been doing some research about options trading.
Please kindly visit here and comments if interested.
Thank you very much.
Sincerely,
Tanady
do you put out a blog with the potential direction of the market direction for the day? Probabilities?
Hi Patrick,
No, my emphasis is on education and empowering traders to do those things for themselves. But thanks for asking.
Now your talking my kind of language Dr Burns…
Great Read! All Meat and Potatoes!
Thank you1
Bill
I am really thankful to this topic because it really gives great information ::*
extremely difficult to read because of the dark background
Hi Barry
Though I like the look and practicality of the tick charts, I’ve never used tick charts. Primarily because I don’t think the MT4 platform makes provision for them. If I’m trading the one hour charts, using the four hour as confirmation (I don’t have Three hour charts either), do I need tick, or one minute charts?
A simple observation, looking at you sample charts above: the blue line on the tick chart -I assume it’s the 50 MA- deviates quite drastically from the one on the two minute thus giving trend disparity.
….Or am I wrong?
Regards
Marc
Hey Marc, Thanks for your comments.
You can use charts that have a 3 to 1 ratio or 5 to 1 ratio (with adjusted inputs on indicators). You can also use 4 to 1 ratio, it’s just not quite as tight a correlation.
You don’t need tick charts, though I personally prefer them. However my main comment would be not to be limited by charting software. I can give you 100% assurance that professional traders don’t allow themselves to be. They know what they want and they use software that gives them what they want.
Regarding the trend being different on different time frames, yes or course, trend is relative to the time frame.
Barry
Thank-you, really, with gratitude, genuine regard for the video on breakout trading,a ten minute slot I happily poured over for nearly twice that, with pause and replay I could more easily gather the details that produced such real answers, a page and a half later of notes to reference. Truly I’ve not in my five and some months of diligent forex study experienced a more concise response : how to protect yourself from a whipsaw breakoutfakeout loss
Hi Barry,
You mention in your course that professionals start taking 50% profits at 1st S/R or even only 4 pips up to pay for any possible loss from this point if it turns against you. What is your strategy for scaling out of a losing position right from entry that never went into profit? ie sell off 50% halfway to stop?
regards
Andrew mcKean
Which software supports Tick charts with settable ticks? I use MT 4 and it doesnot seem to have tick setting. Or is it dependent on your data provider or broker?
Some charting programs do and some don’t. I know that NinjaTrader and Tradestation do. Those are the ones I use. eSignal also does. There are many others, but MT4 does not to the best of my knowledge.
Hello Dr. Burns,
Everything is mathematical! (smile)
In one of your above replies you mentioned the below:
“You can use charts that have a 3 to 1 ratio or 5 to 1 ratio (with adjusted inputs on indicators). You can also use 4 to 1 ratio, it’s just not quite as tight a correlation.”
Is it possible that you could release a list of chart set ups (tick and minute) that give the adjusted inputs on indicators for some of the most used time frames? Or all if your energy allows.
This correlation is pivotal….
Please reply. Or if you feel its best to email me, please do!
Thank you for your sincere devotion to your passion. I hope to pay it forward in the same way to society one day!
Blessings,
John L.
Hi John,
Thank you, that information is in the FAQ sections of the Foundations Courses.
Barry
Thanks for your thoughts on this sometimes controversial subject.
I am so delighted that I found your blog ,as it will definitely assist in
my subsequent investing decisions. I’ll surely visit again in the future. Also, do you have a subscription for your site? I did not notice where to sign up on the blog.
Great article. If I might also add. Give yourself a margin for error when you are investing in the stock market.
You should always have a cushion to fall back on, just
in case some of your investments go south. Putting all of your eggs
in a single basket is not a good idea, since you can lose everything
in a downturn.
Hello Dr. Barry.
You mentioned in the course material that range bars were not recommended. If I set a range bar to 30 ticks, how is this any different than a 30 tick tick bar?
Hi Mike,
Range bars only create a new bar after price exceeds a certain price range you set (from high to low). Tick charts create new bars after a certain number of trades (“ticks”) go through the market.
Barry
Hi Barry, you said you do not recommend range bars for your methodology. Can you tell me why?
Thank you kindly
You really make it seem so easy with your presentation but I
find this topic to be really something that I think I would never understand.
It seems too complex and extremely broad for me. I’m looking forward for your next post, I’ll try to get the hang of it!
Hi Dr. Burns, I agree with your suggests but I think that no one explains the real reason why a lot of people have this doubt about which time frame to trade: the reason is that time frame is just a fiction, prices do not move relately to time.
A 40 pips move is a 40 pips move, either you see it on 1min chart, either you see it on a daily chart.
So which time frame really doesn’t matter if you really know how markets work.
Hi I like your video on you tube wish u all the best and all the good work you doing God Bless . Mohammed,
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Excellent post, Added to favorites – gotta show it to my friends
Do u provide real time data for tick charts
Vincent, I’m not a data provider, so I don’t personally provide any type of data. Ask your broker about that.
Thanks,
Barry
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