Explanation of Time and Sales
Graphical charts (i.e., bar and candlestick charts) are the most popular method of watching and analyzing a market. Graphical charts provide a variety of trading information (e.g., recent highs, recent lows, the last traded price, etc.), and are perfect for providing an overview of a market. However, some trading styles (notably some forms of scalping) require more detailed information about a market, and this is where the time and sales become useful.
Time and Sales Defined
The time and sales are the most detailed display of a market's trading information. The time and sales show every trade that occurs, in real-time, and provides a variety of information about each trade (e.g., the exact time, the direction, the number of contracts that were traded, etc.). Where graphical charts are used to provide an overview of a market's price movement, the time and sales are used to view every detail of a market's price movement, and therefore the two methods are often complementary to each other.
Time and Sales Explained
The time and sales include every trade that occurs for a market, and provides a variety of information about each trade:
- Date and Time: The date and the exact time that the trade occurred
- Direction: Whether the trade was a buying trade or a selling trade
- Price: The price at which the trade occurred
- Volume or Size: The number of contracts (or shares, etc.) that were traded
Some time and sales displays also include additional information such as the current bid and ask prices, the order book (or level two information), or the cumulative volume, but this additional information is not technically part of the time and sales.
Understand the Direction of a Trade
The direction element of the time and sales often causes much of the confusion for new traders. The reason for this confusion is that every trade must consist of both a buyer and a seller (otherwise there would be no trade), and if there are both a buyer and a seller, how can the transaction be classified as either buying or selling?
The answer is that the direction of a trade is decided based on how it affects the current market price. If a trade helps the market price to move up, then the trade is classified as a buying trade. Conversely, if a trade helps the market price to move down, then the trade is classified as a selling trade.
Trade Using Time and Sales
The time and sales can be used by traders of any time frame, but it is primarily used by very short-term traders, such as some scalpers. Some traders use the time and sales on its own (i.e., all of their trading decisions are made using only the time and sales), while other traders use the time and sales in combination with graphical charts, or the depth of market (i.e., level two market data).