Sunday, April 27, 2008

Trading: The different types of charts available

There are 3 types of charts you can trade with: min, tick and volume.

Traders who use minute charts (it could be a 5-min or a 60-min chart) like it due to the predictability and regularity in which the data comes in. For e.g., if you are a trader who uses a 5-min chart, you will know that a new price bar is formed every 5 minutes. 5-min charts are very popular with index day-traders and 60-min charts are popular among forex traders. I know of a professional trader who watches the 5-min charts even if he doesn't trade of it. He merely wants to know what other traders are looking at.

A tick is a trade, regardless of the volume of contracts in that particular transaction. A 100-tick chart forms a bar when 100 trades goes through. You will seldom find gaps with tick charts and the size of the price bars seems to be more uniformly distributed throughout the chart which is good. I know of one professional day-trader who likes to use a tick chart. He typically uses a 100-tick chart for trading e-minis and a 300-tick chart as the higher time frame.

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