What is a tick in stock trading
Many of the technical indicators discussed on the Tradingsim blog deal with assessing a particular stock or ETF. However, in this article we will cover the tick index , which is a broad market momentum indicator used to gauge the strength of the underlying securities of the NYSE. The tick index is important, as it will better position us for when we should enter and exit the markets based on a macro view of price action.
On first glance, the tick index looks a bit chaotic, but as you learn to interpret the readings, the wealth of information it contains will prove very useful when day trading or swing trading.
The tick index measures the short term health of the markets by taking the difference between the number of stocks on an uptick and the number of stocks on a downtick. The tick index sums up this difference for all stocks in the New York Stock Exchange. However, this notice represents extreme extreme buying and selling activity. That extreme buying and selling displayed by the tick warrants caution or even a reversal in the opposite direction.
We keep an eye on the level as it will signal a possible move to or even The higher the tick readings, the more powerful the reversal signals. Since we have covered the power of the tick index to identify market reversals, I want to now focus on how the tick index can be used to confirm the strength of the market.
This is the daily chart of Bank of America BAC , from the period of October to March Below the chart you see the NYSE tick index chart. The red arrows indicate tick index readings of , which correlate to BAC price decreases. On the same day, BAC increased 1. The next arrow is red and it indicates a low tick index reading of On this day, BAC dropped On the third arrow, the tick index registered a reading of This decrease is followed by a further price drop of Notice how the price decreases expanded as the tick index dipped below The fourth red arrow registers a reading of on the tick index and BAC sees its price drop If you compare the BAC chart with other stocks during this time period, you will notice a bearish trend for the months of December through February.
Just as it appears the entire world is coming to an end, the tick index registers a solid bullish up day on the fifth arrow. At the same time, BAC stock price increases 3.
This is a turning point for BAC, because it looks like the bearish trend is interrupted. We have seven cases on the BAC stock chart , which are confirmed by the tick index:. This is the daily chart of General Motors from October through March On the chart you see six green circles and one red circle.
Tick Size and Value Trading Definitions
In the green circles, the price action of General Motors mirrors that of BAC. Only in one example, highlighted in red, did the price action not correlate between the two securities. Are you starting to see how individual stocks move in unison with the broad market?
If you understand what is going on at the macro level, you will naturally have greater odds of success with your individual trades. We have a bullish divergence between the tick Index and a security when the NYSE Tick shows higher bottoms and the chart of the equity shows lower bottoms. After a bullish divergence between the ick indicator and the stock chart, the price of the security is likely to exhibit a bullish move.
Definition of 'Tick Size' - The Economic Times
In many cases, the reversal is rapid. When an equity price closes with higher tops and the tick index has lower tops, this is a confirmed bearish divergence. The bearish divergence between the tick and the stock chart signals a potential downward price move. Discovering divergence with the NYSE tick index is a leading indicator before the actual event occurs. Thus we can position ourselves in the market prior to the start of a potential price move.
Above is the hourly chart of Twitter from December through March Below the chart, we have the NYSE tick index for the same period of time.
The image illustrates a bullish divergence between the tick index and Twitter. Notice that for the period January 19, through February 11, , Twitter has lower bottoms. For the same time period, the tick index has higher bottoms. This confirms a bullish divergence between the price of Twitter and the tick index.
What Is a Tick? | NinjaTrader
After the bullish divergence is confirmed, we see that Twitter experiences a rapid short squeeze. This type of move is rare, but it illustrates the power the broad market can have on a stock that is oversold relative to the entire market. Assuming a stock like Twitter is not headed for the woodshed, the price action of the stock will return to equilibrium with the overall market. This is the daily chart of the New York Times NYT from October through March The chart is supported by the NYSE tick index in the bottom of the image over the same time period.
For the same time period, the NYSE tick index indicates lower tops. This confirms a bearish divergence between the tick indicator and the New York Times price chart. While this is smaller than the price run up of Twitter, it is still sizeable. First, never to rely solely on the tick index.
Make sure you always confirm your tick signals with an additional trading indicator. Secondly, the more periods you take into consideration on the tick index, the more reliable the signals. If one day the tick index registers a high reading, while the price of a security is decreasing, we have a bullish divergence.
Now, imagine if the price of the security is decreasing for a longer period of time and at the same time the tick index is steadily increasing. In this case, due to the longer periods of divergence, there is a greater likelihood the security will experience a short squeeze at some point.
If you are trading a security based on a tick index signal, make sure you confirm the price behavior with another stock in the market.
This way you can validate the security is performing relative to its peers and not experiencing some sort of anomaly. Learn to Day Trade 7x Faster Than Everyone Else Learn How. Free Trial Log In. How to Trade with the Tick Index — 2 Simple Strategies. NYT - Tick Index Example. Bullish Divergence - Tick Index. Bearish Divergence - Tick Index. Tape Reading Time and Sales Window. How to Use the Average True Range Indicator. How to use the Parabolic SAR Indicator to identify Day Trading Signals.
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