Thursday, June 19, 2008

Using the NYSE TICK to Interpret Market Behavior



If you click on the bottom chart, you'll see a five-minute chart of the NYSE TICK for Wednesday, with a 10-bar moving average superimposed in blue. Note that the scale for the raw TICK values appears at right, but the scale for the moving average is constructed at left. That enables you to see peaks and valleys in the moving average quite well. It also helps us see how these peaks and valleys line up with relative highs and lows in the S&P 500 contract (top chart).

In a rising trend, we'll see successive peaks in the moving average of the TICK correspond to higher price highs in the index over time. In a falling market, we'll see lower price lows with each fresh valley in the TICK. In range markets, we'll see new peaks and valleys in the moving average of the TICK fail to bring either new price highs or lows.

Recall that the TICK is measuring the number of NYSE stocks trading on upticks minus the number trading at on downticks. This captures the short-term sentiment of traders, as they either aggressively lift offers across stocks or hit bids. A moving average of TICK thus can be thought of as a kind of overbought/oversold index of sentiment. Some of the best selling opportunities occur at TICK moving average peaks that fail to make fresh price highs; some of the best buying opportunities occur at TICK moving average valleys that cannot generate new price lows.

This style of trading has you executing in a countertrend fashion, but aligning the trade with a longer-term trend. I have found such an approach to be very useful, particularly in guiding execution.

Finally, notice that the moving average of the TICK spent most of the day below the zero (pink) line. That tells us that selling sentiment dominated through the day. By observing whether the moving average is spending more time above or below the zero line (and seeing how that is impacting price), we can gain tremendous insight into the supply/demand dynamics of the market as they unfold.

With frequent observation, you can become quite adept at filtering the market's behavior through the lens of the TICK. It provides a rare window on the actual buying and selling decisions of traders across the entire stock market.

RELATED POSTS:

Trading With TICK - Part One

Trading With TICK - Part Two

Trading With TICK - Part Three

TICK and Intraday Sentiment
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6 comments:

catkevin said...

Hi Brett,

Great series on TICK, I refer to it often. Two quick questions:

1) Is the 10 bar average of closes or (C+H+L)/3?

2) Do you find trading ES using stock bid/ask (i.e. TICK) easier than with futures bid/ask (e.g. market delta)?

Thanks

Kevin

Charles said...

The Highly Esteemed Dr. Brett, thanks for your post on TICK. Do you know of a way I can receive TICK data? I use Ameritrade now and it suits my purposes well. Hoewever, they offer no TICK. Regards, Charles Upton

Krish Rathi said...

Dr Brett, I have same question as Charles. It would be helpful to find the source of raw TICK data!!

Brett Steenbarger, Ph.D. said...

Hi Kevin,

Yes, the average is (H+L+C)/3. I use both TICK and Market Delta as complementary views on short term sentiment. Divergences between the two are very significant. Maybe someday I'll post on that topic.

Brett

Brett Steenbarger, Ph.D. said...

Hi Charles and Krish,

The NYSE TICK is pretty standard on most real time quote platforms, such as CQG, e-Signal, Real Tick, and the like. I archive my data from e-Signal. Historical data on TICK are available from tickdata.com.

Brett

catkevin said...

Hi Brett,

Thanks for the clarification.

I look forward to a post on tick / delta divergence.

Kevin