Thursday, May 24, 2007

Capturing the Intraday Trend with the Cumulative Adjusted TICK

Here we see the ES futures for 5/24/07 (blue line), a one-day cumulative total of the Adjusted NYSE TICK. Recall that the Adjusted TICK is the one minute NYSE TICK minus the average TICK level over the past 20 trading sessions. When the cumulative total slopes downward, we know that we're getting above average selling interest (hitting of bids) across the NYSE stock universe.

Note at point (1) that, despite the early rise in ES, we never saw above average TICK readings. That was our first clue that buyers were not aggressive in the market. We then saw above average hitting of bids and a reversal of ES, with price declining below the open.

Observe at points (2) that bounces in price were not accompanied by significant bounces in the Adjusted TICK: buying remained below average. The general rule during such occasions is to sell these bounces, as they represent short covering and not an influx of fresh buying. This principle would have kept a trader short through much of the decline.

We did get a bit of a bounce in the Adjusted TICK in midafternoon, but note at point (3) that the pattern of lower cumulative readings at price bounces reasserted itself. This led to fresh selling late in the day.

Very, very often I find that following the slope of the cumulative Adjusted TICK line keeps me on the right side of the market. My worst trades have occurred when I've bucked the trend of buying and selling interest.

RELATED POSTS:

Identifying the Trend of Sentiment With NYSE TICK

What You Can Learn From the Opening Minutes of Trading

15 comments:

Srinivas said...

Brett,

Can you explain how you calculate
"one minute NYSE TICK"?. I understand that NYSE TICK is updated 10 times in a minute (every 6 seconds). Do you add all the 10 TICK readings in a minute to come up with one minute TICK value? Or is it the close of each 1 minute TICK bars?

-Srinivas

q8670 said...

hi - great blog!

"Recall that the Adjusted TICK is the one minute NYSE TICK minus the average TICK level over the past 20 trading sessions."

I trade a few strategies and one of them is practically based on the nyse tick, so I'm always interested in what others are doing with the $tick. Regarding your calc for the adjusted tick - could you explain it a bit more in-depth?

How are you calculating the average tick over 20 days?

take care

Jonathan said...

Brett, very nice visual on tick!

John - MarketPilot said...

Hi Brett,

Thanks as always for sharing your great insights into your trading. I really look forward to reading your posts.

I was working on my own Cumulative Adjusted Tick (CAT) indicator. The formula I inferred from your posts sounds straight forward, but my values seem to differ significantly from your chart.

Can I ask if you update your 20 day average Tick value every day (or week) and specifically what was the value you used to create the chart for 5/24/2007?

On the chart it appears to me that the initial 1 minute CAT value is close to –400. My 8:31 CT NYSE $Tick Close value is 84 on 5/24/2007. My 20 day average ranges from 300 to 220 depending on the day I use. So I’m off from the starting candle somehow.

We may have some data differences, but this still seems too far off to just be data differences. Also, my CAT also goes positive from 9:04 to 9:15 for 5/24/2007.

I tried a Technorati search and found the following post and associated question and answer in the related comments that follows:

http://traderfeed.blogspot.com/2006/09/cumulative-nyse-tick-valuable-measure.html

Q: One question on the cummulative TICK. Are you adding just the closing TICK reading on each 1 minute bar to obtain it? Or are you also incorporating somehow the high and low of each 1 minute TICK bar as well?

A: Thanks for the opportunity to clarify. I use the high-low-close data on the TICK on a one-minute basis and cumulate those readings.

So by this answer are you implying that you are using the formula (High + Low + Close) / 3 and not just the Close of the 1 Minute Tick candle? Is this for both the 20 day average and the Cumulative calculations?

I tried calculating both ways and still cannot come close to the values in your chart. So can you let me know if I’m off on any of these details as well:

The 20 Day Average (20DA) is the Sum of every 1 minute NYSE Tick Close (or HLC/3) for the last 20 days. If I’m correct, the NYSE Tick runs from 9:30 – 3:00 Eastern so there are a total of 390 values for each day. So total all 1 minute Tick values over the last 20 days and divide by 7800 for the 20DA.

Now the Cumulative Adjusted Tick sounds like the

Sum (Tick 1 minute Close – 20DA) from start of current session until current candle.

When I sum the values I end up with a much larger negative number. The value for CAT on your chart appears to go below –1000 at the end of the day.

Thanks again,

Trade Wise, Trade Well
Regards,
John

Michael said...

Brett,

It appears that the Cumulative Adjusted TICK is a powerful indicator. Is this something that you calculate on your own, or do you have access to it in a charting package? I would like to use this in my trading.

Thank you,
Michael

Brett Steenbarger, Ph.D. said...

Hi Srinivas,

I average the high-low-close values of $TICK each minute.

Brett

Brett Steenbarger, Ph.D. said...

Hi q8670,

I take the roughly 7900 previous one minute values for the $TICK and find the average. Then I subtract that average value from each current one-minute TICK reading. That gives me the Adjusted TICK. I cumulate the Adjusted TICK readings for each day to get the Cumulative Adjusted TICK.

Brett

Brett Steenbarger, Ph.D. said...

Hi John,

Per my recent response above, I update the 20-day average TICK each minute. I used a running one-day moving average of the Adjusted TICK for the chart of 5/24, with values updated each minute.

Brett

Brett Steenbarger, Ph.D. said...

Hi Michael,

I calculate this entirely on my own. I don't know of any software that adjusts TICK values, although you can approximate the findings with some manipulations of charts (moving averages, trend lines, etc).

Brett

The Dude said...

Hi

I tried to get RealTick to calculate this inside, but I ran into a limit of how many days back the intraday, minute charts can handle (only 13).

So you output the data and then calculate it directly in Excel?

I had lots of the same questions as those here, thanks for the clarification.

Thanks,
Matt

Brett Steenbarger, Ph.D. said...

Hi Matt,

I have downloaded the data daily from RealTick or e-Signal into Excel since 2002, which is how I've developed my database. Most real time platforms only carry a limited range of 1 minute data. TradeStation may carry more than that for $TICK. Historical intraday data can also be purchased through www.tickdata.com.

Brett

Jeff said...

For Tradestation, set up a twenty day minute bar chart with $TICKC as your second symbol. It's scaled down to fit on the TICK chart:

Variable: NumBar(0), TotalBars(0), TotalBarsMA(0), NumBar2(0), CumBars(0), CumBarsMA(0);

If Date <> Date[1] Then

Begin
TotalBars = 0;
TotalBarsMA = 0;
NumBar = 0;
End

Else

Begin
If C data2 <> 0 Then
Begin
NumBar = NumBar + 1;
NumBar2 = NumBar2 + 1;
End;
TotalBars = TotalBars + (High data2 + Low data2 + Close data2)/30 - CumBars/NumBar2;
CumBars = CumBars + (High data2 + Low data2 + Close data2)/30;
TotalBarsMA = Average(TotalBars, 3);
Value1 = TotalBars;
Plot1( Value1, "Plot1",iff(Time > 1500, Black, iff(TotalBars > TotalBarsMA, Yellow, Red))) ;

End;

Jeff said...

Brett, you have clearly generated a great deal of interest here. Regarding the lookback period, do you think it would it make sense to attenuate the average tick period to the dominante cycle or semi-cycle of the market?

Brett Steenbarger, Ph.D. said...

Hi Jeff,

Thanks much for the TradeStation code; I really appreciate your offering that. The idea re: calibrating the Adjusted TICK to a dominant market cycle is not something I've ever contemplated, but it's an interesting notion. Given the frequency of cycle change, I'm not sure it would provide consistent results.

Brett

Jeff said...

You are welcome -- it may not line up exactly with your posted results, but it appears to be directionally correct. Ehlers (spelling?) has a pretty good adaptive model for cycles that may be of interest and can alter the look back period in real time. In my opinion, because the adjusted tick is essentially a momentum view on daily direction, the period will change results and thus matters. For example, a 20-day view on today's action led to a flat adjusted tick impression, whereas alternate periods showed positive momentum. For the time being, I am charting both adjusted and unadjusted until I get a better feel for this issue.