Linda Bradford Raschke switched from using the TRIN as her primary market internal to the TICK a few years ago. Since then many traders have discovered the usefulness of the TICK indicator and now cannot trade without it. So what is all the fuss about?
What is the TICK Indicator?
The TICK indicator measures market breadth by subtracting the number of NYSE stocks on the downtick from the number of NYSE stocks on the uptick. If a trade is at a higher price than the previous trade, that trade is known as an "uptick" trade because the price went up. If a trade is at a lower price than the earlier trade, that trade is known as a "downtick" trade because the price went down. The "tick indicator" measures how many stocks are moving up or how many are moving down in price.
The TIKI indicator is the difference between the number of up ticking DOW stocks vs. the number of down ticking DOW stocks.
TICK = Upticking issues - downticking issues
This number will fluctuate throughout the day, underscoring the level of buying and selling pressure at a given moment.
The TICK is a breadth indicator giving traders a view into the strength or weakness of market internals. If you compare the number of upticking stocks to the number of downticking stocks, the result will reflect the markets up or down momentum at a certain point in time. For example, if the SPX is slowly moving upwards and the downticking stocks outnumber the upticking stocks reflected by a downtrending TICK, it is likely that only a few strong stocks are holding up the overall market. What happens, of course, is that when the buying in these few issues is done, the overall market itself will move downward.
On the other hand, if the overall market is declining but the upticking stocks begin to outnumber the downticking issues, reflected in a positive trending TICK, you would have a good case for the market to turn around and start a rally.
Traders can use the TICK to confirm price moves and provide advance warning of momentum shifts. Uptrending TICKs are bullish and downtrending TICKS are bearish.
Look for divergences when price makes a new high (or low) but the TICK makes a lower high (or higher low), failing to confirm the price move and warning of a slackening (or accelerating) of momentum and potential stall or reversal. A similar phenomenon would be a steady trend in the TICK that runs counter to the trend of the market. Let's take an example. Here is a chart of the 5 minute TICK and SPX on February 2nd.
Notice the lower highs on the TICK but the SPX is climbing. Then the TICK makes a lower low but the SPX makes a higher low. These divergences should alert a trader that there is weakness in this rally and there are fewer and fewer stocks holding up the index.
On February 3rd I made note in the Market Monitor that the TICKS were making a double bottom but the S&P futures (symbol ES)was making a lower low and that I read this as bullish and we may see a rally. I wasn't sure as to how big the rally would be but I was warning to not be short.
ES rallied 5 points from its low of 1185.75. This rally did have a few other things going for it as well like MACD divergences and touches of S2 pivot points but the TICK chart was the one that alerted me to possible strength.
Another use of the TICK is to use extreme high or low readings to identify sentiment/momentum extremes (similar to the overbought/oversold oscillator stochastics) - Extreme high or low TICK readings can accompany market climaxes, warning of possible blow-off moves.
On February 2nd the FED made an announcement of a 0.25 rate hike. Everyone knew what the FED was going to do but still the markets have to react and react they did. However, using the extreme TICK reading after the announcement would have been good for your pocket book.
First of all at 2:25 the TICKS hit a high of 1335 when ES was trading at 1196. ES eventually hit a low of 1190 for a 6 point ride. Then at 2:48 the TICKs once again moved over +1000 but this time to +1229 when ES was trading at 1193. The subsequent low was 1189.25 for another 3 or 4 point move. Now these trades are fast and not for the faint of heart so not for everyone but even if you don't trade them they will give you a good feel for market extremes. So if the TICKs are over +1000 or under -1000 they are at an extreme and not a good idea to be in a trade contrary to the expected move.
Because the TICK indicator is very sensitive and also very volatile it can be deceptive because it is simply a snapshot of the market at any given time. To counteract this you can use a larger time frame or smooth the indicator with the 10 period moving average to remove some of the "noise" and better reveal its true nature.
The TICK/TIKI are very short-term indicators that can be used to measure intraday price momentum. By comparing the number of upticking stocks to the number of downticking stocks, you get a measurement of the market's internal strength or weakness at a given point in time. It can provide advance warning of momentum shifts and be used to confirm price strength and direction.
C U next time