By: Jeff Niles
Leading indicators are few and far between for traders looking to gain an edge in the e-mini markets. Retail traders spend the majority of their time focusing on lagging indicators such as MACDs or Bollinger Bands. These indicators do more harm than good for the uneducated trader. Professional traders know that in order to get an edge in the market they need to use the NYSE TICK chart to get a read on future market sentiment.
Futures market professionals know that to take advantage of short-term over bought and oversold value areas they must constantly monitor the TICK chart. The math behind the chart itself is quite simple. It plots the up ticking vs. down ticking stocks traded on the New York Stock Exchange. The majority of professionals watch the tick on a low time frame chart in order to see quick swings in the readings.
The most basic technique for using the TICK chart in trading is to fade the extremes. What that means is that when the TICK chart reaches an extreme (+/- 1000 reading) the market has attained a level of bias that it cannot possibly hold on to. Common sense would tell you that if the market can't maintain that sort of buy or sell pressure then surely a reversal is need to correct the short-term inefficiency. Sure enough this system is very useful for picking lows and highs for the day.
Contracts traded by computer programs inside the e-mini markets account for a large percentage of total volume on any given day. These programs are heavily dependent on TICK chart readings to establish daily ranges. An extreme TICK reading is a signal to program that they need to exit their position and take profits on the move as price is going to briefly correct. Having this knowledge a smart retail trader can beat the programs to the punch by watching the TICK and establishing ranges and trend lines on the chart itself. As the TICK trends lower you can anticipate a reversal in the opposite direction before it actually registers in price.
Armed with that knowledge traders are able to spot where price is likely to bounce off of, at least initially, before continuing or reversing on a larger time frame. If traders know when to anticipate a bounce they can use that knowledge to get in before the computer programs.
E-mini trading without the use of the NYSE TICK chart is not advised for even the most experienced of traders. In order to be a successful trader, individuals must take advantage of all edges available to them. The NYSE TICK is the biggest edge short-term traders have in the market for beating computer trading and long-term investors.
Disclosure: Long /ES