I am often asked what type of chart time interval I use when trading emini contracts. The answer isn’t an easy one because I use a variety of tick and time charts to direct my trading effort. To be sure, the time or tick chart will determine how well you understand the chart you are trading and have a direct effect on you bottom line, profits.
That being said, which chart setting should you choose?
My personal preference is to use a tick chart in heavily traded contracts during trading hours. The ES emini contract would be a great example for this application. The contract is heavily traded during regular trading hours. The YM contract does not lend itself to tick trading, at least in my experience. I don’t get a good read on the market action because there are less contracts being traded every minute. I like to use the 1 minute, or 3 minute charts for the YM contract.
On the ES e-mini contract, I get a good idea of the velocity of the market by how fast the 233 tick chart bars fill. Try trading a tick chart in the evening hours and you can get a feel for what I am saying. Some bars in the evening can go on for a half hour: You never really get a good read on the market.
Can your trade the YM contract on a Tick chart?
Yes, but the strategy takes a bit more patience and is good for seeing broader chart trends. As a scalper, I find the results less profitable on the YM contract using the tick charts because it doesn’t give me as clear a picture of the market action.
Why 233 ticks?
Well…hmmm….233 is a Fibonacci number and many in the market trade using only numbers in the Fibonacci sequence of numbers. Personally, I am not a huge devotee of the Fibonacci sequence, but have found the results with 233 ticks to be satisfactory. You will find great superstition, which is not grounded in scientific fact, on the use of the Fibonacci sequence in many trading plans. It always brings a bit of a chuckle, as countless articles have been written which shows that historically the Fibonacci sequence is less than accurate. For me though, the 233 tick charts work well. I don’t suppose the world would end if you used a 250 tick chart or a 200 tick chart, but that is merely a guess on my part.
What about time charts?
I like one and three minute charts, and in markets that are a bit stagnant these time sequences work well. I have used time charts in very volatile markets with great success. Though I cannot recommend time charts in volatile markets for the weak of heart. When the market is experiencing dramatic swings in momentum the best idea is to go golfing. The trade set-ups are difficult to ascertain and your profits will suffer. Each trade in these markets is an educated guess. I simply don’t enjoy trading the market when it oscillates willy-nilly.
In heavily traded and trending markets I like tick charts, and in more stagnant, choppy or consolidating markets I use time charts. The best idea is to use the charts to practice and flip back and forth with your charting software. You will be amazed at how the greatest set-up with a 233 tick chart looks when you see the same information graphed in a 3 minute sequence.