Advantages of Data-Based Intraday Charts (2024)

Many traders workwithintraday price charts based on time intervals that include5-minute, 15-minute, or 60-minute intervals. This categorization means that one bar, whethercandlestick or OHLC(open-high-low-close),will print at the end of each specified time interval.

For example, bars on a 60-minute chartwill print at 9:30 a.m., 10:30 a.m., 11:30 a.m., and so on until the end of the NYSE or NASDAQregular session. Time is the only consideration in thiscomputation, meaning thatvolume and trading activity has no bearing. Thus, there will always be the same number of bars per trading day when using the same time interval.

Data-based chart intervals allow traders to view price action from various data intervals instead of time intervals. Tick, volume, and range bar charts are examples of data-based chart intervals. These charts print a bar at the close of a specified data interval, regardless of how much time has passed:

• Tick charts displaya specifiednumber of transactions.
• Volume charts indicate when a certain number of shares or contracts have traded.
• Range bar charts represent when a predeterminedamount of price movement has occurred.

Let's take a closer look at these data-based chart intervals and how we can use them to our advantage.

Tick Charts

Tick chartsare beneficial because they allow traders to gather information about market activity. Since tick charts are based on a certain number of transactions per bar, we can see when the market is most active,or sluggish and barely moving. For example, one bar will print after every144 transactions (trades that occur) on a 144-tick chart.

These transactions include small orders as well as largeblock orders. Each transaction is counted just once, regardless of the size. More bars will print in periods of high market activity. Conversely, fewer bars will print during periods of low market activity. Tick charts provide a logicalway to measuremarket volatility.

Unlike time-based intraday charts based on a set amount of minutes (5, 10, 30, or 60 minutes, for example), tick chart intervals can be based on any number of transactions. Frequently, the interval of tick charts is derived from Fibonacci numbers,where each number is the sum of the two previous numbers. Popular intervals basedon this series include144, 233,and 610 ticks.

Volume Charts

Volume charts are based solely on the number of sharesor volumethat is being traded. These bars may provide even more insight into market action because they represent the actual numbers that are being traded. Similar to tick charts, we can examine how fast a market is moving by noting how many (and how quickly) bars are printing.

For example, one bar will print after every 1,000 shares have traded on a 1,000-volume chart, regardless of the size of the transactions.In other words, one bar might compriseseveral smaller transactions or one larger transaction. Either way, a new bar begins to print as soon as 1,000 shares have traded.

It should be noted that volume intervals are relative to the trading symbol and markets that are being analyzed. The volume interval will relate to shares when applied to stocks or exchange-traded funds (ETFs), contracts when applied to the futures/commodities markets, and lot sizes when used with forex.

Volume intervals are often scaled to the characteristics of anindividual symbol because securitiesthat trade higher volumes require a larger interval to provide relevant charting analysis. Common intervals for volume charts include larger numbers (such as 500, 1,000, 2,000) as well as larger Fibonacci intervals (such as 987, 1,597, 2,584, etc).

Range Bar Charts

Range bar chartsare based on changes in price and allow traders to analyze market volatility. For example, a 10-tick range bar chartwill print one bar each time there are 10 ticks of price movement. So, if a new bar opens at 585.0 in this example, that bar will stay active until the price either reaches 586.0 (10 ticks up) or 584.0 (10 ticks down).

Once 10 ticks of price movement have occurred, that bar will close and a new bar will open. By default, each bar closes at either the high or the low of the bar as soon as the specified price movement is reached.

A benefit to using range bar charts is thatfewer bars will print during periods of consolidation, reducingmarket noise encountered with other types of charting. Thesebars deliverthe same price information as time-based intervals, often allowing traders topinpoint entries with greaterprecision.

Choosing a Data Interval

Choosing the right interval depends on your style of trading. If you are looking for bigger moves and plan on staying longer in a position, consider larger data intervals. Conversely, if you trade for smaller moves and like to be in and out of a positionquickly, considersmaller data intervals.

There isn't a single perfectsetting that covers every trading style and personal preference. The figure below shows a comparison between tick, price, and range bar charts.

The Bottom Line

Data-based chart intervals can be beneficial because they allow market participants to viewcharts that are driven by factors other than time. As with alltrading tools,these charts must be set to accommodate the market participant'sown styleand strategies. Traders may find it helpful to experiment with different data types and intervals to find the combination that best suits their methodology.

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