Methods For Short Term Trading:
As day traders, we have to make some simple, necessary, decisions before we trade. What market are we going to trade, what trading methods are we using, and what time frame to trade. In this video we focus on two method for traders who are short term trading. Using two different types of charts both Range Charts, and Tick Charts. Both of these chart types go against the traditional Candlestick Charts, but are useful for short term trading. They can clean up the appearance of short term charts by reducing noise in the market while still providing you all of the key information for trading.
Short term trading with Range Charts:
We have gone into detail about Range Charts because I personally like to use them instead of 5 minute charts. They reduce the noise in the market when it is sitting stagnant at a specific price while still defining the important highs and lows marked in the market.
You can check out this detailed video explaining how, and why Range Charts can help your short term trading.
What they do is condense all of the “in between” market activity where price was hovering at a consistant price. This means that you will not see 10 candlesticks where the market has barley moved in price. Instead, that market activity will be condensed down into one single candlestick where price actually moved.
They work on a market range based system. For a new Range Bar to be formed, the market has to move a specific price, or tick value.
A 4 Range Chart on a ES500 chart means that the market has to move 4 ticks in order for a new Range Bar to form. 4 Ticks on the ES500 is equivalent to 1 Point (at .25 per tick). That means if price hovers at a similar area (say under 1 point move) a new range bar will not be formed until price actually changes. This means your charts will be cleaner while still displaying the exact same information, allowing you to make clearer decisions when short term trading.
Tick Charts For Short Term Trading:
Tick charts take short term trading to a totally different level. They, instead of time based charting, focus completely on actual market transactions. This results in more noise in the market being displayed, but also offers a clear picture of how much activity is on the market. Day traders use this method for short term trading because, as the market increases in volatility, the chart will directly reflect it.
Tick charts work by creating a new candlestick or bar for a set amount of transactions on the market. A 233T chart prints a new bar for every 233 trades that are made between buyers and sellers. One important point to know is that those 233 trades are a combination of volumes traded. This means that trading 10 contracts at once compared to 1 contract are both counted the same. 233T charts do not indicate that only 233 contracts were traded. There is only a guarantee that a minimum of 233 contracts were traded in that period.
Check out this detailed video describing Tick Charts:
What type of chart to use for Short Term Trading?
Tick charts, Range Charts, or even time based charts are all valid. It depends on the type of trading, and trading plan that you are looking to execute. If, as a day trader, you want to trade on a short time frame, but do not like the noise of the time based charts, or Tick Charts, Range Charts are a great option. If you like seeing more market activity over a clean chart then Tick Charts may work better for you. The key of both of these methods is that they do not hide any data from you (unlike Renko Charts). They just display all of the available information in different ways.
They can even be combined with a multi time frame trading method as your entry time frame.
Bruce Banks