Tick Chart or 1-Minute Chart for Day Trading?

The pros and cons of both chart types

1 minute chart versus tick chart
SPY 1-Minute Chart (Top) Versus 1000 Tick Chart (Bottom). Thinkorswim

Traders have a number of options when it comes to which chart types they use. There are Renko, bar, candlestick, Heikin Ashi and line charts, to name a few. Candlesticks and bar charts are the most popular--they provide the same information, just presented in a different way. When using these types of charts traders can choose to create price bars based on time or ticks. Time and tick charts both have pros and cons.

 

1-Minute Charts

If you use a one minute chart (or two minute or five minute, etc.) a new price bar forms when the time period elapses. On a one minute chart a new bar forms every minute, showing the high, low, open and close for that one minute period. 

This creates a uniform x-axis on the price chart, because all price bars are evenly spaced over time. 60 price bars are produced each hour, assuming at least one transaction took place. One minute charts are popular among day traders, but aren't the only option.

Tick Charts

The bars on a tick chart are created based on a particular number of transactions. For example, a 512 tick chart creates a new bar every 512 transactions. Customize tick charts to the number of transactions you want, for example 5 ticks or 1546 ticks.

Throughout the day there are active and slower times (see Common Intra-day Stock Market Patterns), where many or few transactions go through.

Therefore, the x-axis typically isn't uniform with ticks charts. When a market opens there is lots of volatility and action, so tick bars occur very quickly. Five ticks bars may form in the first minute alone. During the lunch hour though, when the number of transaction decreases, it may take five minutes before a single tick bar is created.

 

Comparing a 1-Minute Chart to a Tick Chart

When there's lots of activity a tick chart shows more information (more price waves, consolidations and smaller scale price moves) than a one minute chart. For example, when a market opens several ticks bars within the first minute or two may show multiple price swings which can be used for trading purposes. If using a 1-minute chart only one bar forms in the first minute, and two bars after two minutes. These one or two bars may not present the same trading opportunities as the several tick bars which occurred over the same time frame. In this way, tick charts allow you get into moves sooner, take more trades and spot potential reversals before they occur on the 1-minute chart. 

When there are few transactions going through, 1-minute charts will appear to show more information. For example, assume you have the option of using a 90 tick chart or a 1-minute chart. During the lunch hour only 10 transactions go through a minute. The minute charts shows a bar each minute as long as there is a transaction. Through the course of the lunch hour 60 1-minute bars are produced. The tick chart only creates a bar every 90 transactions, or approximately one every 9 minutes in this case.

During the lunch hour only 6 tick bars are produced. 

The 1-minute chart in this case could show some price swings, trends and support and resistance which may not be visible on the tick chart (with fewer bars).

Tick charts "adapt" to the market. Fewer bars form when there are fewer transactions, warning a trader that activity and interest levels are low or dropping. The 1-minute chart on the other hand continues to produce price bars every minute as long as there is one transaction in that minute. This can create the illusion of activity, even though there may actually be little interest and volume in the stock, futures contract or forex pair.

The attached chart shows a 1-minute chart (top) compared to a 1000-tick chart (bottom) of the SPDR S&P 500 (SPY). They both start and end at the same time, 9 AM and 4:02 PM.

The one-minute chart provides more price bars before 9:30 AM, but the tick chart creates more price bars during the day (when there is a higher number of transactions) essentially creating a higher "resolution" view of price moves.

Final Word on Tick Charts versus 1-Minute Chart

One chart type isn't necessarily better than another. Both can be traded effectively using the right day trading strategy, but traders should be aware of both types so they can determine which works better for their trading style.