Graphical charts (i.e. bar and candlestick charts) are the most popular method of watching and analyzing a market. Graphical charts provide a variety of trading information (e.g. recent highs, recent lows, the last traded price, etc.), and are perfect for providing an overview of a market. However, some trading styles (notably some forms of scalping) require more detailed information about a market, and this is where the time and sales becomes useful.
Definition of the Time and Sales
The time and sales is the most detailed display of a market's trading information. The time and sales shows every trade that occurs, in real time, and provides a variety of information about each trade (e.g. the exact time, the direction, the number of contracts that were traded, etc.). Where graphical charts are used to provide an overview of a market's price movement, the time and sales is used to view every detail of a market's price movement, and therefore the two methods are often complementary to each other.
Explanation of the Time and Sales
The time and sales includes every trade that occurs for a market, and provides a variety of information about each trade:
- Date and Time - The date and exact time that the trade occured
- Direction - Whether the trade was a buying trade or a selling trade
- Price - The price at which the trade occured
- Volume or Size - The number of contracts (or shares, etc.) that were traded
Some time and sales displays also include additional information such as the current bid and ask prices, the order book (or level two information), the cumulative volume, etc., but this additional information is not technically part of the time and sales.
Understanding the Direction of a Trade
The direction element of the time and sales is often the cause of much confusion for new traders. The reason for this confusion is that every trade must consist of both a buyer and a seller (otherwise there would not be a trade), and if there are both a buyer and a seller, how can a trade be classified as either buying or selling?
The answer is that the direction of a trade is decided based upon how it affects the current market price. If a trade helps the market price to move up, then the trade is classified as a buying trade. Conversely, if a trade helps the market price to move down, then the trade is classified as a selling trade.
In the example time and sales display above (view the full size chart), the buying trades are colored green, the selling trades are colored red, and the trades that could not be classified are colored yellow. Most time and sales displays color code the direction element in order to make it easier to see and analyze in real time.
Trading Using the Time and Sales
The time and sales can be used by traders of any time frame, but it is primarily used by very short term traders, such as some scalpers. Some traders use the time and sales on its own (i.e. all of their trading decisions are made using only the time and sales), while other traders use the time and sales in combination with graphical charts, or the depth of market (i.e. level two market data).