Welcome to MyPivots

# Chart Types

#### Four types of candle charts

To my knowledge there are 4 different ways to build a candle in a Japanese candle chart. You can build each candle (or bar as some call it) based on time, ticks, volume or range.

Time: After a period of time you take the open, high, low, and close during that period and plot that as a bar. The period of time can be anything from a few seconds to months, years or decades.

Ticks: A tick is a single trade irrespective of size. A tick chart builds each bar based on a certain number of ticks per bar. A 233 tick chart will create a new bar after every 233 trades have gone through.

Volume: A new bar is created after a certain number of contracts have been traded. For example, every 2000 contracts a new bar is shown.

Range: A new bar is created when the price trades outside the defined range for each bar. These charts are also called momentum charts. By definition the closing price is either the high/low of the bar and the opening price is 1 tick above/below the previous bar.

Here is the same 1 hour segment in the market on 3 May 2004 from 09:30 to 10:30 EST for the ES contract showing what 3 of the different charts look like for a 1 minute, 2000 volume and 233 tick chart.

#### ES 233T candle chart from 09:30 to 10:30 EST on 3 May 2004

As you can see the 3 charts exhibit very similar patterns under these conditions because the average volume and number of trades can be roughly equated to a time period during high volume periods. The charts take on a completely different characteristic when the volume and number of trades drop. Consider the following similar charts that show the market action overnight and up to 09:15 EST on the same day as the charts above. The settings are the same except for the time based chart which shows a new bar every 15 minutes.

#### ES 233T candle chart to 09:15 EST on 3 May 2004

Moving averages and other derived indicators from a price based chart usually use the closing price of a candle. Indicators are usually based on a number of bars and this will affect the signal given by indicator depending on the chart type (and hence number of bars).

It is my opinion, that the tick chart serves little purpose and is dangerous and if you want to use a size based bar chart you should use a volume based chart instead. Note that I say that this is my opinion. Let me know if you don't think that this is the case.

A tick chart creates a new bar ever X number of ticks. Let's assume that X in this case is the popular value of 233 used in a lot of tick charts. If 233 trades of 1 contract each are traded sequentially then a new bar will be formed. If 233 trades of 200 contracts each are traded sequentially then a new bar will be formed. In the first case we have 233 contracts being traded and in the second case we have 46,600 contracts (233 * 200) being traded. This example, although extreme and unlikely, is a possibility and less exaggerated examples of it are obviously more likely than this example. The volume chart address this issue and rolls onto a new bar every X number of contracts traded.

It is (again this is my opinion) volume that pushes the market and not number of trades and that is why I feel that the tick chart should be abandoned in favor of the volume chart if it is size based bars you are looking for.

Subsequent to writing what you've read above I've been introduced to Momentum or Range bars. These do not (in my opinion) strictly fall under the candle bar category because the closing price of a momentum bar is always at the high or low of the bar so you only have 3 different values in the bar and not 4 as in a traditional candle bar. These will be discussed on subsequent pages.

At this point in time I do not have any examples of range/momentum charts to show you.

### Final Note

If you are using eSignal and wish to experiment with different chart types then here is how you do it:

In the Interval box on an advanced chart enter:

233T - to create a 233 tick chart.
1 - to create a 1 minute chart.
2000V - to create a 2000 volume chart.
150S - to create a 2.5 minute chart.