Stock Charts: Beautiful Charts vs Accurate Charts

(Stock charts: Based on the number of ticks/candles)

When you look at your stock charts for making trade decision, do you wish to see beautiful looking charts – one which has more candles & ticks? Or you wish that your charts are accurate?

Obviously both, you would say – More Candles = Accurate Stock Charts!

However, what do I mean by beautiful charts? Are accurate charts not beautiful?

Yes, they can be good looking, provided there are a lot of ticks/trades and that the (stocks/symbols) in question is not ill-liquid.

Lets see an example of both:

1 - Beautiful looking liquid stock charts. Lots of ticks & lots of candles keep the chart filled up and looking pretty - TrueData
Pic 1 – Beautiful looking liquid stock charts. Lots of ticks & lots of candles keep the chart filled up and looks beautiful.
Pic. 2 - Not so good looking ill-liquid stock chart. Lots of gaps in it. Looks like many ticks are missing & the charts looks ugly - TrueData
Pic. 2 – Not so good looking ill-liquid stock chart. Lots of gaps in it. Looks like many ticks are missing & the charts looks ugly.

It is not possible for your ill-liquid stock charts to be filled up and look as beautiful as the liquid ones.

Because the stock/symbol just does not have enough quotes/trades to fill the charts up, in your selected time frame.

But that does not make your charts inaccurate at all!

Understand, not all stocks are traded all the time.

Even some highly liquid stocks could sometimes have no trades for over a minute or even more.

However, its natural for some novice & sometimes even experienced traders to consider more ticks in a chart as more accurate.

Let us see if this is always correct.

This phenomenon is seen in both liquid and ill-liquid stocks but for ease of understanding, I am going to use here an ill-liquid stock chart of a company called BANARAS BEADS LTD (NSE Symbol: BANARBEADS)

Let us see the stock chart of BANARBEADS from 2 different sources for the same date range:

Pic. 3 - Stock chart of BANARBEADS ( 1 min) from Data Vendor / Broker A - 21 - 23 Jan 2019 - TrueData
Pic. 3 – Stock chart of BANARBEADS ( 1 min) from Data Vendor / Broker A – 21 – 23 Jan 2019
Pic. 4 - Stock chart of BANARBEADS ( 1 min) from Data Vendor / Broker B - 21 - 23 Jan 2019 - TrueData
Pic. 4 – Stock chart of BANARBEADS ( 1 min) from Data Vendor / Broker B – 21 – 23 Jan 2019

So what’s wrong here? Are we missing something? Why are these 2 charts so different for the same date range of 21 – 23 Jan.? Look carefully and ask yourself, which chart above do you think is accurate and correct?

There seems to be more ticks & thus candles in “Pic 3 – Data vendor A” than in “Pic – 4 – Data vendor B.”

As there are more ticks, the chart of Data Vendor A must be better & accurate. Right?

Wrong! Let me tell you, not a single quote has been missed here in “Pic. 4 – Data Vendor B.”

How is that possible?

Since you can see the gaps and incomplete candles in ‘Pic – 4 – Data vendor B’ as compared to ‘Pic 3 – Data vendor A’.

How can ‘Pic – 4 – Data vendor B’ be correct? He must be missing ticks?

No, he missed no ticks. It is amazing and surprising to see the difference and you would be astonished to know the reason.

In case, a symbol had only a single tick in an entire minute, then what should the candle look like?

It should be just a dot or a single line in a bar chart, because the Open, High, Low and Close are all the same for the 1 min candle. Obviously! Right?

However, if there was just 1 quote; how it is that the data vendor/broker gets a good looking candle for that very minute?

We found that the data plugins or the inherent feed itself of some of the data vendors/brokers like ‘Pic 3 – Data vendor A’. Results in the “automatic insertion of additional ticks” at certain points on the chart.

Most of the times, the data vendor does not even know, though sometimes, they do it knowingly.

If you look carefully at the charts, you will find that the vendor is depicting the following. (You can view this in live markets also) :-

>> The close of the previous 1 min. candle, becomes the open of the current/next 1 min. candle when a new tick lands up.

>> So in this case, the open of the new candle = the close of the previous 1 min. candle (new tick generated automatically) and the close of the current candle = the single tick which came in.

>> This creates a wrong and unnecessary additional tick, which also results in the creation of a candle with a body, which should normally be absent.

>> This actually means, that the stock traded at least twice during that 1 min. candle, whereas it had actually traded only once.

>> This is also possible with more than 1 tick, in case the opening tick does not come exactly at the opening time of the candle.

>> As can be seen from the charts, some vendors also create Zero volume ticks/candles, for every passing minute, even when there is no trade/tick.

This once again causes the number of ticks to increase.

Actual Ticks which landed - Can also be seen in Pic 2 above - with the Amibroker chart - TrueData
Actual Ticks which landed – Can also be seen in Pic 2 above – with the Amibroker chart
Inaccuracies  Additional Ticks Creeping into the charts - TrueData
Inaccuracies / Additional Ticks Creeping into the charts

Hence, the charts look more filled up and beautiful, tempting even the best of experts to rely on these filled up charts more than the accurate ones!

This wrong and misleading depiction of your stock charts create wrong results or outputs when you run scans or overlay indicators on these stock charts.

Since extra ticks have been added, even though there was no such trade – your indicators could never be correct.

Although your charts had more ticks & looks beautiful.

How do we check, if my broker/data vendor provides accurate stock charts?

Track the charts of an ill-liquid stock/symbol (which trade once in 1 min. or greater than 1 min.).

And see, what your vendor does when a single tick comes in.

>> Issue 1 – Does he pull in the “Open” from the “Close” of the previous candle? If yes, then you have your answer.

>> Issue 2 – You also need to check for the other case, where your vendor gives zero volume ticks.

Vendors could have one of the above errors or even both of the above.

For the data to be depicted correctly in 1 min. candle format, the “Open” of your candle must not be formed as the “Close” of your previous candle, when there is only one or very few quotes per minute.

The first tick landing up in any 1-minute duration should be the ‘Open.’

And, if there is no other tick for that minute, it should also be the ‘High’, ‘Low’ and ‘Close’.

Conclusion:

Many people think that beautiful looking stock charts with more ticks and more candles like that of “vendor/broker A” is better than that of “vendor/broker B.”

Whereas, “vendor/broker A” actually created false ticks to make the stock charts look filled up and beautiful.

I have seen people wondering in disbelief, when they see this phenomenon in the stock charts of their beloved broker/vendor.

My attempt here is to, enlighten everyone to make sure that their scans and studies are created from the accurate stock charts and not just beautiful stock charts with inserted ticks.

I also hope that vendors/brokers who read this post would learn from this post and correct their charts.

So that, they stop misleading their own customers and the general public at large with their beautiful stock charts and instead stick to the accuracy as desired.

Please leave your thoughts or share screenshots of such instances of beautiful & filled charts which you find for the benefit of other readers/traders.

Written by Kapil Marwaha

Kapil Marwaha is the Founder & Managing Director of TrueData Financial Information Pvt. Ltd.. His aim - "To make TrueData the Best Trading Decision Support company in the country." TrueData's flagship product Velocity 2.0 has already become immensely popular and is used by a large audience through out the country.

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