Wednesday, December 07, 2005

The NYSE TICK: Does it Matter?

Readers who also follow the Trading Psychology Weblog know that I track each day something called the Adjusted NYSE TICK. This is the number of stocks upticking minus downticking among NYSE issues, adjusted to create a zero mean. I calculate values on an intra-minute basis and then sum all values for the day to create a single daily figure. This daily Adjusted TICK, summarized each day on the Weblog, correlates highly with price change in SPY: about .75.

Since July, 2003, the average value for the Adjusted TICK is 3.26 (because of the adjustment) and the standard deviation is 527. I took a look at what happens after all days that show an Adjusted TICK reading in excess of one standard deviation. When the Adjusted TICK is greater than 600, the average price change over the next three days is .31% (50 occasions up, 22 down), far greater than the .09% (308 occasions up, 227 down) for the rest of the sample.

When the Adjusted TICK is less than minus 600, the average price change over the next day is -.13% (34 up, 40 down), significantly weaker than the average change of .07% (316 up, 217 down) for the remainder of the sample.

This makes sense, because the TICK is capturing short-term market psychology: the aggressiveness of buyers and sellers in lifting offers and hitting bids. But does the TICK predict those more volatile, trending indices we've been talking about, such as the small- and midcaps? We'll look at that shortly.

4 comments:

tim4 said...

I am finding the TICK to be somewhat useful on 1-5 min charts. You have mentioned MarketDelta on another post; this seems to expand on the concept of using hits on bid or ask to track aggressiveness of buyers and sellers. I'll be following up with them; many thanks for the lead.

Brett Steenbarger, Ph.D. said...

Hi Tim,

I do find both TICK and Market Delta to be helpful intraday. It is the shifts in distribution of the values that I find to be of particular importance in anticipating sustained directional moves.

Brett

Forex Trading Based on Supply and Demand said...

Dr. B,
If you had to use a one line buy statement for the TICK to use in a automated strategy to catch a shift from bearish to bullish what would it be?
I am writing a Tradestation strategy for the Mini Dow and I want to use the $TICK shift as the trigger for entry. Based on your recent article in SFO, I am using this statement, but it is not based on the adjusted $TICK. Both price and TICK are one minute set as data1 for price and data2 for tick:
// LOW OF $TICK WHICH IS DATA2 IS LESS THAN -200 AND CLOSE OF $TICK > 100 AND LOW IS GREATER THAN LOW [1]
IF LOW [1] OF DATA2 < -200 AND CLOSE [1] OF DATA2 > 100 AND LOW > LOW [1] AND UPTICKS >
DOWNTICKS THEN

BUY ("$TICK UP") NEXT BAR AT OPEN STOP ;

Brett Steenbarger, Ph.D. said...

Hi Forex,

My best guess is that a strategy based on an upside TICK breakout following a period of negative TICK readings might be worth testing--

Brett