Charts are used by just about every emini futures trader that relies on technical analysis to read the market, spot potential set-ups and determine when to enter and exit positions. How these charts are set up within a trading system depends on many factors including personal preference, trading instrument and method of approach such as scalping, day trading or swing trading. Most people active in the markets are aware of time-based charts like the daily, hourly, 15 minute on down to the 1 minute time frame. However, tick charts are growing in popularity and for good reason - they provide a better picture of what it going on within the market.
Conventional time-based charts will draw a bar after each successive time period has completed a cycle. For example, if the trader set his chart to a 3 minute time frame, a bar would form every three minutes. Each new bar would move up or down based on market action depending on who is in control at the time, bulls or the bears. These traditional time bars tell us a lot but the tick-based chart tells us more - a lot more!
Tick charts only draw a bar once a set number of trades have been completed as designated by the individual trader within his charting software. For example if the 1000 tick chart were used a bar would not form until 1000 trades have been completed. Used in conjunction with the volume histogram, we can determine how many average contracts were exchanged with each trade. If a high volume of contracts were traded on average, we know the professionals are in control and it is best to pay attention. If a low volume of contracts were traded on average, then we know amateurs are most likely at work.
Tick charts are also better at helping us avoid whipsaws since they only show the number of completed trades. This is particularly useful during periods of low activity like the New York lunch hour or during the overnight session since compression makes interpreting the data easier and more reliable.
Tick charts are quickly becoming the charting tool of choice especially among emini futures traders although they do require an adjustment period when switching over for those currently using time-based charts. However, with the amount of market information they provide the choice to move over to the tick-based chart is a no-brainer and they work equally as well on the ES, NQ and YM mini contracts.
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