Tick Charts vs. Time Based Charts on MT4
Hello traders, welcome to the scalping course and the second module, getting started: The Backbone of a Scalper. In this lesson we’re going to talk about time-based charts and tick charts. We’re going to go through the difference between time-based charts and tick charts. It’s not that we’re going to tell you which one of those charts you should use but what we’re aiming to do here is give you a more broad definition of what the information you can find inside of those charts can be.
Now the first thing we’re going to do is we’re going to go through what a time-based chart is, and I think most of you traders out there already know what a time-based chart is. Then we’re going to go through what a tick chart is and the information that you can find inside of a tick chart. Then we’re going to jump into the actual trading platform and we’re going to compare today’s Euro-U.S. dollars price action from a time-based chart point of view and a tick chart point of view.
So we’re going to start by just going through what the most common type of charts are. Time-based charts are the most commonly used type of charts. For example, on a five minute chart you already know that each candle represents a specific time frame or five minute period. On a 30 minute chart, each candle represents a 30 minute period, on a one hour chart each candle represents a one hour period, etc. Time is the only consideration when printing these candles. Volume and trading activity have no bearing in the printing of these bars whatsoever. When we are using time-based charts we are only using time as a consideration when printing a bar. This means that it doesn’t matter how much volume we have inside a certain period of time, what matters is the opening price and the closing price and then we move to the next candle.
Not in tick charts. Tick charts are data-based. This means that they are more beneficial because they allow us to gather information about the trading activity. Now tick charts are based on a certain number of transactions per chart. This is why we can see when the market is active and when the market is barely moving. To put this in other words, we’re going to go through an example. For example, in a 144 tick chart one bar will print after 144 trades have gone through, regardless of the size of it. This means that it doesn’t matter if it’s an institutional trade of thousands of contracts or if it’s your trade of one lot on the Euro-U.S. dollar. When 144 trades have gone through, we move to the next bar.
This means that time is not a consideration when we’re printing these bars, okay? The only consideration is the volume in the market. The information can be gathered because if we have a lot of bars printing to the upside or to the downside, this means that a lot of batches of 144 trades have gone through, meaning that there is volume increasing in the market. If we are watching the same market on a time-based chart, we are only going to know that price is moving up and down in that specific time frame.
When you are using tick charts, you can see which market is actually moving or not. For example, if we’re looking at a market that’s not moving at all, on a time-based chart we’re going to have 10 or 15 candles throughout the session but if don’t have 144 trades gone through, we’re only going to have one bar on the tick chart. This actually doesn’t happen, but it’s just an example of how tick charts can help you to spot markets that are actually moving and where the volume is. Now the more orders go through, the more bars will the chart print in opposite of time-based charts where the next bar is printed when the period ends.
So these are the main differences. Both of them can be used for scalping because the actual levels will be the same on either chart. It’s just the information that we are going to gather from the tick chart is more representative when we are taking our scalping decisions.
Now let’s go to the trading platform and let’s compare both of the charts. Okay, here we go. So as you can see on the upside we have the Euro-U.S. dollar 10-minute chart and on the downside we have the Euro-U.S. dollar 40 tick chart. This means that every single bar has 40 ticks in it. In the case of the 10-minute chart, each bar represents a 10-minute period. And this is where scalping becomes very interesting when you are using the tick charts. What we are going to do is we’re going to compare the levels on both of the charts, okay?
Now let’s start by the level of support, which is this one right here, which will be the 08,70 level and we’re going to do the same on the tick chart at the 08,70 level. Now this is the actual level, 08,70. Now you can see that we have pinpointed this low right here, which is about this low on the tick chart. And you can see that the tick chart is actually more functional when it comes to picking lows in the market. Now what we’re going to do is we’re going to adjust this level of support right here and on the tick chart we have it at two pips above it. That’s not the issue, but what I want you to notice is this first jump to the upside, okay?
On the time-based chart you can see that we have one single candle that jumps from this level of support to the upside and we have a rejection candle on the 10 minute chart. Now on the tick chart you can see the same movement right here. If you were to take a trade at this level of support after all these tick bars will reject this level of support, you would have made about 16 pips on a very short scalp, okay? On the 10 minute chart, this movement is actually untradeable because you can see that there is no actual confirmation of an exit so we would have to hold our position and get stopped out on break even, or hold our position through nonfarm payrolls which is not what we’re aiming to do here.
Now on the tick chart, you can see that after the second 40 tick bar, we have a very small rejection bar with 40 ticks inside of it. This means that inside of this 40 tick batch, the bears were in control of the market. So this is a very good signal for us to get out of a 16 pip scalp. Now what I wanted to show you actually was how much better it is to read a tick chart than the timeframe chart. Of course if you are looking at the longer term trades the time-based charts are very good because you are just waiting for prices to hit your levels and get in and out of the market at certain and defined levels. But when you’re scalping, you need to know, well we do have profit targets to the upside when we are long into the downside when we are short. But we do need to pay attention to what a market’s doing.
For instance, in this move to the upside, you can see that on the 10-minute chart we have a very nice candle that moves up and then we have a signal of rejection and then the next candle prints as a bearish candle. On the 40 tick chart, we have a break of this area of consolidation after our scalp which would have been a very nice trigger to go long, okay? And these are just examples of scalps that you could have done with the same price action that you couldn’t have done on the time-based charts. So you have a very nice breakout of this zone of consolidation, and then you have a rejection candle that would have yielded 30 pips, a 30 pip win. This is what’s interesting, okay? You have one, two, three, four candles on the 10-minute chart which means you have a 40 minute period between this scalp and the nonfarm payrolls announcement, okay, where you can see there was a lot of volume in the market.
You can see that actually we have a lot of 40 tick bars before we have the push to the downside, okay? This is where the tick charts come very handy. You can see we have a push to the downside and then a push to the upside. On the 10-minute chart this move is untradeable unless you are trading levels, which would mean that you didn’t get filled because your entry would have been around the 08,72 level with the stops below the previous lows. But on the tick chart, you can see that first you have a rejection bar then you have a bullish bar. Then you have a push to the downside and you have the push to the upside. Now, how would you have traded? You wouldn’t have gone long after the. . .Well, you could have gone long after the rejection candle and the blue candle or the bullish candle if we were not talking about nonfarm payrolls, but because we were talking about nonfarm payrolls, we would have waited.
After the first push to the downside, we see a price push into the upside, then a gap, then you can go long, and you would have made about 60 pips on this trade, okay? Where on the 10-minute chart you can see that we have a huge candle to the upside and then a bearish pressure to the downside. This bearish pressure to the downside you can see it right here. I mean, this is the difference between what you look for on a timeframe chart, which is this push to the downside on this up candle and on the tick chart you can see that this actual push on the 10-minute candle is this period right here.
Let me just point it out for you on a rectangle. And this is the period of correction before the push to the upside to the 1.10,23 level, which is right here, you can see it, 123 level. And on a 40 tick chart, you could have made a point of trying to get long after these corrections had ended because we break with the immediate down structure and we moved to the upside. But on a time-based chart, you can only see a rejection in this candle and then a push to the upside. It’s better to have more information than just the time movements within a period of time, and for scalpers you’ll find more opportunities if you use the tick chart.