This week I wanted to discuss one of the market indicators known as the Tick index or the $tick index. This gives us market sentiment.
We use chart indicators and studies to analyze a stock. Market indicators analyze an entire INDEX for potential weakness, money flow and other important criteria.
Today we are going to focus on the TICK Index. These Market Indicators are called Breadth Indicators because they analyze the "Breadth and Scope" of an entire Index. Per Investopedia the definition of a TICK Index is this:
The TICK index compares the number of stocks that are rising to the number of stocks that are falling on the New York Stock Exchange (NYSE). The index measures stocks making an up-tick and subtracts stocks making a down-tick. For example, there are roughly 2,800 stocks listed on the NYSE. If 1,800 stocks have made an uptick and 1,000 stocks have made a down-tick, the $TICK index would equal +800 (1,800 – 1,000).
In the US markets, the Five (5) major market indexes are the New York Stock Exchange, the Russel 2000, the S & P, the DOW Jones and the NASDAQ. Their respective ticker symbols are: the NYSE: $TICK, the RUSSEL 2000: $TIKRL, the S & P: $TIKSP, the DOW Jones: $TIKI, and the NASDAQ: $TICK/Q.
In the past, most traders only monitored the $TICK (the New York Stock Exchange) due to the lack of immediate information and data gathering. However, with the advancement in technology and data sharing, the ability to monitor all the major indexes at once is not only possible, it's recommended. Now you have another tool to maintain overall market trend analysis.
These two pictures show how the data of a $TICK chart is presented in the TOS platform. Personally, I do not find this user friendly at all. A trader needs to have data presented in a way that is relevant and useful; especially the TICK index.
Let's step back and look at the big picture. Why does this matter? How is this relevant to me as a day trader? Why do I need to pay attention to something I am not trading? MARKET SENTIMENT and MARKET BREADTH.
The TICK index is recording the buying and selling action of an entire index. This tells us how many stocks are selling "at or below" asking price and how many stocks are being bought "at or above asking price".
How aggressive are buyers overall "at this moment in time"? Is this behavior only happening on one market index? Or is this aggressive buying happening on all market indexes at once?
If all major markets suddenly have aggressive sellers, then I would want to know this and maybe not take a position until I found out why. If all the markets suddenly have aggressive buyers, then perhaps a highly liquid ETF like $SPY will be in play for a quick scalping play. There's momentum created by this sudden buyers' market.
Now that we know why it is important, how can we use this information to trade? Understanding the TICK index offers traders a short-term perspective of overall market SENTIMENT.
The ratio of stocks on an up-tick versus the number of stocks on a down-tick present a short-term actionable data point. How can we day trade with these indicators?
TICK Index value between +200 and -300 indicate a neutral market sentiment which should give a trader pause. Bullish is when values become higher than +200 and bearish when it is lower -300.
Very bullish when its value is higher than +500 and very bearish when it is lower than -500. Note that when TICK is higher than +1000 or lower than -1000, then a reversal of the market will probably happen soon.
Below are examples of different TICK Studies modified in the ThinkorSwim platform.
An Accumulative $TICK Meter for the ThinkorSwim Platform: http://tos.mx/t5p4Pt
A more simple TICK Meter for the ThinkorSwim Platform: http://tos.mx/dJKsjX
A simple $TICK Meter with $TRIN and labels for the ThinkorSwim Platform: http://tos.mx/rmw535
The TOS platform offers us the ability to create studies to present data in ways that are more user friendly and condensed. In the case of the TICK Index see above.
Now, what about overall markets? Instead of only watching one major index, why not watch four (4) major indexes? With a custom study, we can. What is the criteria?
We want to monitor the major indexes all at the same time. That means having the data in a lower study (a lower indicator). We want to know when there is market agreement.
Here is the TICK Graph Indicator link for the ThinkorSwim Platform: http://tos.mx/SiFLFR
The picture above shows four indexes are displayed using their TICK data. At a glance we can see right away what kind of day we had in the market.
The Accumulation / Distribution Line is the "ZERO LINE" of the market. A TICK above this line represents a day of positive market and a TICK below this line represents a day of negative market.
We can also see right away that the strong surge throughout the morning lost strength. As a result, two markets turned around and had more selling pressure than buying pressure.
Across the top of the study is the signal line showing when there is positive market sync with a green dot, negative market sync with a red dot and no market sync with a white dot.
In the picture below, the overall market sent was bearish for most of the day, although there was a nice rally for a short time.
We have reviewed the TICK Graph and have discussed the signals it gives and how to analyze the readings provided by the graph. Let's discuss how to use this in our trades throughout the day.
When attempting to enter a momentum trade the ideal signal would be market sync in the trend direction you're going. When the market is trending in sync, there is more strength in the overall market direction. This is effective trading ETF's (a collection of stocks bundled into a single ticker symbol).
The TICK Index offers traders the advantage of observing immediate market sentiment for a short period of time. This gives a small window into an opportunity for a trade. It also gives an opportunity to NOT take a trade.
Breadth Indicators such as TICK are proven tools that are used by traders of every style. The $Tick Graph is a indicator that shows the $TICK index for four major markets and signals when those four markets are trending in the same direction. As a result, we receive market sentiment.
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