Tick Volume Charts, The Story They Never Told You !

Most of the people using the metatrader and other trading platforms use what we call “time based charts”. On this type of charts, price is graphed as a function of time with a certain amount of time filling each price candle. So for example, on a 5 min time based chart, each candle represents the price movement during a five minute period. What is exactly wrong with this type of trading ? The problem is that this time based charts often go flat when there is a very small amount of trading during a certain period of time. For example, if only 5 trades happened during the past 2 hours, then all those candles would look very flat. This is translated in having a lot of whipsaws on systematic trading. 
For example, when you are trading an EMA cross on time based charts, the EMA simply goes flat with price and you get a lot of false croses, etc. The way to avoid this on time based charts is to introduce another ton of indicators which can filter out the bad signals generated by the indicator laying flat on quiet trading periods.
The solution to this problem, which is something that is used by most succesful manual traders out there is volume based charts. On this type of charts, each candle does not represent a fixed amount of time but a fixed amount of volume, represented in ticks. That way you would have a lot of candles when there is high volatility and fewer candles when the market goes flat. However, even when the market goes flat on time based charts, it does not go flat on volume based charts because the lack of trading just makes the chart become halt, no orders executed, fewer candles drawn.
This type of chart makes almost every simple trading system work. For example, trading a stochastics cross on time based charts is not profitable because of all the whispsaws you get when trading on flat periods. When you change to volume based charts, the profitability of this simple systems just sky rockets. You can trade things as simple as moving average and PSAR color changes profitably on volume charts while it is almost impossible to do so on time based charts.
If you would like to learn more about profitable mechanical trading systems please consider buying my ebook on automated trading or subscribing to my weekly newsletter to receive updates and check the live and demo accounts I am running with several expert advisors. I hope you enjoyed the article !
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One Response to “Tick Volume Charts, The Story They Never Told You !”

  1. fiepmupke says:

    Hey Daniel,

    It’s one thing to say what could be done better, it’s another to say HOW to do this. How or where can volume charts be obtained?

    Greetings from Joseph

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