THE HAnDbOOk Of TECHnICAL AnALySIS■ (^) The bar volume is constant
■ (^) The transactions per bar is variable
■ (^) The bar volatility is variable
Since the creation of a new bar is not time dependent, the time axis is plotted
in a non‐linear fashion.
Constant‐transaction (tick) Charts
In constant‐transaction or tick charts, a new bar is plotted once the minimum
number of transactions for a new bar to be created is met. Below are the charac-
teristics associated with constant‐transaction charts:
■ (^) The bar range is variable
■ (^) The bar duration is variable
■ (^) The bar volume is variable
■ (^) The transactions per bar is constant
■ (^) The bar volatility is variable
Each transaction is represented by one tick. Therefore, five ticks indicate
that five transactions took place. Note that the volume associated with each
transaction is unspecified, though it may be inferred, depending on the market
traded. The time axis for constant‐transaction charts is plotted in a non‐linear
fashion.
Constant‐volatility Charts
In constant‐volatility charting, each new bar is plotted once the minimum price
excursion for the creation of new bar is met. Below are the characteristics associ-
ated with constant‐volatility charts:
■ (^) The bar range is variable
■ (^) The bar duration is variable
■ (^) The bar volume is variable
■ (^) The transactions per bar is variable
■ (^) The bar volatility is constant
This difference between this form of charting and constant‐range charting
is that the minimum price excursion required is determined by price volatility.
For example, we could set up a chart whereby each new bar is plotted once the
minimum price excursion of 2 × ATR is met. In a sense it is objective, as the bar
size is determined by market volatility. Nevertheless, it is also subjective insofar
as the choice in the number of multiples of ATR to be employed is concerned.
Figure 3.14 illustrates the use of a Point and Figure chart where the box size is set
to 1 × ATR. Notice its use of constant‐volatility charting to identify trends more
effectively as compared to regular constant‐range charting, as seen on the right‐
hand side of the illustration.