Most investors and traders are accustomed to viewing price charts that are based on time, such as daily, 60-minute or five-minute intraday intervals. With a time-based chart, one bar — be it a candlestick or OHLC bar — prints at the end of each specified time interval, regardless of the amount of trading activity that has occurred. On a five-minute chart, for example, a bar will print at 9:35, 9:40, 9:45, 9:50 and so forth until the end of the trading session.
There always will be an equal number of bars per trading session when the same time interval is applied. Time-based charts can be as small as a few seconds to as large as weekly, monthly or yearly intervals.
A trader’s style often determines the size of the chart interval. Longer-term traders, such as swing and position traders, might use hourly, daily or even weekly charts. In contrast, short-term traders may prefer 30-second or one-minute charts to see the details of price action.
While time-based charts are perhaps the most widely used, activity-based price charts offer traders a different view of the markets, and as more bars print within a set amount of time, these charts can indicate an increase in volatility. Tick, volume and range-bar charts are examples of activity-based charts.
These charts print a new bar at the close of a specified activity interval, regardless of how much time has elapsed. “Activity driven” (below) shows a 15-minute chart of the E-mini S&P 500 (ES). The overlays in the chart show one 15-minute bar “exploded” to illustrate the tick (on the left) and range bar (on the right) activity that took place during the same time. Activity-based charts can paint a more accurate picture of market action by showing the effect that the number of transactions or volume has on price.