Today, I decided to touch more on an educational feature rather than provide a certain market outlook.
Many of my clients and blog readers know that when it comes to short-term trading I am a fan of using volume charts, tick charts, range bar charts and Renko charts rather than the traditional time charts like the 1 minutes, 5 minutes etc.
My rule of thumb is that if you as a trader who makes decisions based on charts that are less than 15 minutes time frame, it may be worth your time to research, back test and do some homework as to potentially using other type of charts like volume charts, Range charts etc.
Volume charts will draw a new bar once a user defined number of contracts traded. An example is the mini SP 10,000 volume chart which will draw a new bar once 10,000 contracts are traded.
Range bar charts will draw new charts once price action has exceeded a user's pre-defined price or ticks range. An example might be an 18 ticks range bar chart on crude oil.
While volume charts rely ONLY on volume, the range bar charts rely ONLY on price action.
Their main advantage over traditional time charts is twofold in my opinion:
If the market is moving fast, reports have come out or there is heavy volume in the market, the traditional 5 minute chart will need 5 minutes to complete the next bar before it provides you with a signal...if you have day traded futures before you know what 5 minutes can do to these markets....The volume charts or range bar charts in this case will complete the bars MUCH faster because there is strong price action and strong volume and will be able to provide a signal faster than the time charts.
On the flip side, there are times when the market is dead...low volume, sideways, choppy action. If you are using the 3 minute chart and a moving avg. cross over, you may get a signal simply because time has passed and the moving averages crossed even though the market is pretty dead....If you are using a volume chart and the market is slow...it will take a while for the bars to complete and hence it may filter out some "noise" in the market.
Below are a few chart examples of volume, range and time charts. If would you like a free trial of our premium charts or to discuss more in depth the different charts and strategies, feel free to visit us!
5 Minutes Silver Chart from Feb. 10th 2015
Silver_(Globex)_Mar_15_5_Min_Primary_Session
7 Ticks Range Bar Chart on Silver Futures Feb. 10th 2015
Silver_(Globex)_Mar_15_Primary_Session_Range_Bar_7_Tick_Units
Same Silver Contract, Same Day and Time...This Time 180 Volume Chart:
Silver_(Globex)_Mar_15_Primary_Session_Constant_Volume_Bar_180_Contracts
Disclaimer - Trading Futures, Options on Futures, and retail off-Exchange foreign currency transactions involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more of your initial investment. Opinions, market data and recommendations are subject to change at any time.
About Ilan Levy-Mayer
Ilan Levy-Mayer has been a commodities broker for over 15 years, and holds an MBA in Finance and Marketing from the Hebrew University in Jerusalem. Ilan is currently the Vice President and a Senior Broker at Cannon Trading Company.
Take a step in the right direction and contact me today, Toll-Free: 800-454-9572 or direct: +310-859-9572. You may also directly e-mail me, Send mail.
