What Is the Tick?

by: Jeff Pierce

I want to first say that I just came across this indicator a few months ago, so my experience is very limited with it. Here is a good definition of what it is and then I’ll explain how I use it.

Via daytradingit :

The Tick can be used as a short-term indicator while day trading. Although it represents the number of stocks ticking up minus the number of stocks ticking down on the NYSE, it can be used as a barometer for stocks trading on all US Exchanges.

For example, if the Tick reads +200, then 200 more stocks on the NYSE are ticking up then are ticking down. This is obviously a bullish signal. If the Tick should read -354, then we understand that 354 more stocks are ticking down then are ticking up. This is a bearish signal. In addition to the actual “number” reading of the Tick, one should also pay attention to how the Tick is trading in relation to it’s support and resistance.

When the Tick remains positive on the day bullish momentum can continue. When the Tick remains negative, bearish momentum can continue. However, if the Tick should rise over +1000, the market will likely soon reverse because it has become over bought. The reverse is also true. If the Tick should fall below -1000, the market will likely reverse because it has become very oversold.

If you happen to be long when the Tick begins to rise over +1000 or short when the Tick begins to fall below -1000, you need to begin to lighten up on your positions or close them entirely in anticipation of a reversal.

To be extremly careful while trading, only enter longs when the Tick is above zero and shorts when the Tick is below zero.

How I use it most of the time is just how they recommend, as a sentiment reading gauging extreme bullish/bearishness. However, I was just thinking about how it hit an all time high on Tuesday and maybe this is a very bullish sign. We’ll only know in hindsight, of course, but gauging by how my shorts acted yesterday and the resiliency of yesterday's market to not reverse completely, this could be the start of a decent trading bottom.

Yesterday was not one of my better trading days in a while, so I’ll refrain from making any recommendations as to the direction of today's market. I feel if you’re flat, then getting into the markets now is sort of like getting into a market that realistically could go either way. There are other ways to participate in trading, such as picking a market like gold or oil where the trend is a little more established. I would be very cautious about over weighting long or short positions in the overall markets at this point.

Hope that sheds some light on the tick and how you can implement it into your trading strategy.