[BennyHey]

One thing I have noticed is more and more traders are implementing tick charts in their trading now that they are available through most charting programs. While I use tick charts myself one thing traders must be aware of is using very low number tick charts. I see 89, 110, 150 etc. tick charts being used on the es and while that may be fine during slower market conditions it will move with incredible speed during high volume times.

Price will "jump" 3-4 bars in a split second not giving the trader enough time to place an order. While during backtesting/research when the data is still it may look like their is plenty of time to have your indicators trigger and enter an order but in reality it is impossible.

Take a look at the time on each bar, if you see 1:30min spacing during slower times and 20-30 seconds during faster times you can say it is a reasonable amount of time to see it, recognize it, move your mouse to your trading DOM or hotkey and press the button. On the other hand trying to get in and out of trades in a matter of seconds is unrealistic. Think about what has to happen.

You order have to recognize it, hit the button, the order has to travel from your computer, to the broker, and the broker then submits the order. BE WARY OF SLIPPAGE!!!

This image is from a 110 tick chart on the ES. From the time the MA's crossed to the second arrow it took less then 2 seconds. Looking at it as a static chart it looks very reasonable to scalp a little short. But the reality is unless you have a co-located supercomputer this move would have been impossible to catch unless you anticipated the move and got in early.

all the best to y'all

[Tradewinds]

I totally agree with you. And I can't remember ever reading another post that makes this point. I've read plenty of posts that mention slippage, and a fair amount of post that talk about things like co-located supercomputers, but I don't read a lot of posts about the difference between reading a historical chart and what happens in real time.

To take the subject to an ever deeper level, and ask some more questions, how can so many trades be executed so fast when the price only hits those price levels for a second or two? I'm not convinced that it's just a matter of co-located supercomputers. If the price is literally, only at that price level for a couple of seconds, AND if a lot of orders get executed in those couple of seconds, then the orders must either be from co-located supercomputers, OR there was a match up of buyers and sellers who had their orders in AHEAD OF TIME. In other words, they staked out a price, and waited for the market to come to them. I'm wondering if a good part of those order executions are from orders that where put in ahead of time, maybe by traders with large orders. That would be something I'd be very interested in learning about.

Think about it. Let's say there was a buyer and a seller who wanted to buy and sell at the same price. Both the buyer and the seller put their orders in. But even though there is a buyer and a seller, the market price isn't at that price. So there could already be a pre-existing match up of a buyer and a seller at a certain price, but the order doesn't execute because the market price hasn't gone to that price level. I'm wondering if there are only a few people who would have access to that information. I'm not sure how that would work, but if market makers knew there were a lot of buyers and sellers at a certain price level, the market makers might try to move the market price towards those buyers and sellers so that those orders could execute.

I have no idea if that is how it works, or partly how it works, but it would be interesting to know.

[BennyHey]

Originally Posted by Tradewinds »

I totally agree with you. And I can't remember ever reading another post that makes this point. I've read plenty of posts that mention slippage, and a fair amount of post that talk about things like co-located supercomputers, but I don't read a lot of posts about the difference between reading a historical chart and what happens in real time.

To take the subject to an ever deeper level, and ask some more questions, how can so many trades be executed so fast when the price only hits those price levels for a second or two? I'm not convinced that it's just a matter of co-located supercomputers. If the price is literally, only at that price level for a couple of seconds, AND if a lot of orders get executed in those couple of seconds, then the orders must either be from co-located supercomputers, OR there was a match up of buyers and sellers who had their orders in AHEAD OF TIME. In other words, they staked out a price, and waited for the market to come to them. I'm wondering if a good part of those order executions are from orders that where put in ahead of time, maybe by traders with large orders. That would be something I'd be very interested in learning about.

Think about it. Let's say there was a buyer and a seller who wanted to buy and sell at the same price. Both the buyer and the seller put their orders in. But even though there is a buyer and a seller, the market price isn't at that price. So there could already be a pre-existing match up of a buyer and a seller at a certain price, but the order doesn't execute because the market price hasn't gone to that price level. I'm wondering if there are only a few people who would have access to that information. I'm not sure how that would work, but if market makers knew there were a lot of buyers and sellers at a certain price level, the market makers might try to move the market price towards those buyers and sellers so that those orders could execute.

I have no idea if that is how it works, or partly how it works, but it would be interesting to know.

Good points, I was gearing this more toward the average trader but you bring up some good food for thought I live in chicago and have been on the floor a few times. We actually took a field-trip to the CME when I was in grade school.

Anyway I will chip in my 2 cents by sharing what I know. What you see as "price" is actually 2 numbers, a bid and an ask. There are market makers competing against each other to provide the lowest bid and highest ask in order to create a market. In a heavily traded market the spread, "difference between the bid and ask" is usually just a tick. In a lower volume period the spread will become wider as the environment is much riskier for the MM so he must widen the spread to protect himself. Watch the YM overnight and you can see 3-4 tick spreads.

During regular market hours there are the MM competing against each other for your business. They buy and sell out of their inventory to sell it to someone else to make a profit. A dream scenario for the MM would be a price that does not move. They could then continually sell the bid then turn and sell that contract on the ask in order to make the .25 tick profit(on the ES).

Another big component of liquidity is the big brokerage house who have huge amounts of cash to buy and sell in order to make $$$$ for themselves. They are the ones who have people on the floor buying and selling.

Now in the computer age there are also ALGO's and bot programs buying and selling at incredible speeds (often owned by the big brokerage houses again) . An analogy I heard once that I like was: "Its like running back and fourth in front of a bulldozer picking up pennies" They have computers processing order flows and statical probability models that when X and XY conditions are present they can put several orders in and cancel them faster then it takes to blink an eye. A great video is this one by none other then SoulTrader. He has a time and sales window that not only shows trades but also orders placed and cancelled in a matter of seconds. Great stuff

[URL="http://www.videos.traderslaborat ory.com/video/236/Tape-Reading-with-Order-Ticker"/URL]

[Tams]

tick chart is the most inconsistent and inaccurate chart you can use for trading analysis...
because most of the data supplier aggregate the ticks in their data feed,
you really don't know how much you can rely on your the chart's oscillations.

[joshdance]

Originally Posted by Tradewinds »

how can so many trades be executed so fast when the price only hits those price levels for a second or two? I'm not convinced that it's just a matter of co-located supercomputers.

Isn't the simple conclusion that two computer programs are trading with each other? One reloads the bid, the other is selling at the market. They fire thousands of orders per second. This happens all day, every day. Or perhaps I'm not understanding what you're talking about.

[Logic]

Originally Posted by Tams »

tick chart is the most inconsistent and inaccurate chart you can use for trading analysis...
because most of the data supplier aggregate the ticks in their data feed,
you really don't know how much you can rely on your the chart's oscillations.

Hey Tams!

You hit the nail on the head with this comment. It amazes me that people don't research their trading environment more so they see the areas of absolute chaos the charting platforms create for traders to fall prey to.

[TimRacette]

Benny- I use a 512t chart on the ES and around news announcements even THAT time frame can become erratic. The problem with executing orders on any time frame smaller is that you're entering the realm of high frequency and program traders who have computer systems to react to those moves way faster than a screen trader can manually enter orders.

The big money is made in the larger move. Trade the trend until it fails.

[BlowFish]

Originally Posted by Tams »

tick chart is the most inconsistent and inaccurate chart you can use for trading analysis...
because most of the data supplier aggregate the ticks in their data feed,
you really don't know how much you can rely on your the chart's oscillations.

The term GIGO springs to mind

Volume charts are indeed more 'resilient' to aggregating, that in and of itself does not make them 'better'.