In trading, analyzing charts is a major activity since this helps the trader keep track of price fluctuations. Usually, the charts contain candlesticks each of which represent a time interval.
The average price at which the asset was traded during the interval would be revealed by the candlesticks. The trend of the sticks would tell the story of how the stock’s price is moving ahead with time. Tick trading involves a slight change in how these charts work.
What is tick trading?
If one knows how to do online trading, then tick trading is not very different. It refers to the usage of charts where the candlesticks don’t represent time intervals. They represent the number of trades instead. For instance, consider a traditional chart where each candlestick represents 15 minutes of time.
It can be changed to 30 minutes or an hour, or 10 minutes, and so on. Instead of the time intervals, imagine if each stick represented 50 trades of the stock. It can be changed to 80 trades or 100 trades or 25 trades and so on. This is how tick trading works.
How is tick trading different?
In a traditional chart, the trader looks at the price movements as per time. They would see that the price has changed so many units in the past 15 minutes or 30 minutes.
While this does give a fair idea of the trend, the picture painted by a tick chart would be entirely different. It would tell the trader how many trades have affected this price change.
Thinking in terms of change in price in relation to the number of trades that have caused that change can give entirely different perspectives to the trader.
Two simple strategies for tick trading
1. Speed
When using the tick index, speed is the weapon. Sometimes a price change would happen even within a few seconds due to a huge volume of trades. One has to act swift in such circumstances. To be able to act with such speed, one has to tune their minds to think faster.
They have to learn to process trades within very short spans and should be trading on a reliable platform. Keeping up with market developments in the real-time as and when they happen is also crucial.
2. Risk Management
Operating at such lightning-fast speeds, the process becomes that many times riskier too. The fundamentals of risk management such as opting for strict stop loss orders and managing position sizes are to be taken much more seriously while playing with tick index.
It also becomes harder to emotionally process losses due to the pace at which the whole thing happens. One has to maintain composure to continue trading in their best form.
Benefits Of Tick Trading
There are several advantages to using a tick trading index. Quick profit opportunities that vanish within seconds or minutes can be spotted in this process and be capitalized.
The nature of this trading format usually requires small capital investments, thereby making it more accessible. The markets become highly liquid because of tick trading and this allows traders to enter and exit positions swiftly, without major impact on the prices.
Further, these strategies can apply to both bullish and bearish markets, and increase the opportunities to book profits. The format is also quite flexible and allows traders to explore their individual trading styles and experiment with their risk tolerance.
Conclusion
The tick trading world is fast paced and here success depends on swift decisions, discipline with risk management, combined with a clear idea of the market dynamics. A focus on the short-term price movements helps in making use of profit potential.
Agility and precision come in handy when one delves into the tick trading space. The modern electronic trading platforms and the innate flexibility that tick trading comes with, offer an avenue for traders to benefit from short-term fluctuations in the market.
However, vigilance is important since the format requires constant attention and a lot of discipline to navigate these waters.