What’s the $TICK indicator?
The $TICK is a powerful tool used by short-term traders in trading stocks, ETFs, and stock index futures. In general, the TICK gives you a reference of how many stocks in the NYSE have increased in price versus how many stocks have decreased in price compared to the last price quote. So if 1000 stocks on the NYSE are up ticking, and 600 are down ticking, then you will see a TICK reading of +400. For day traders trading the SPY, S&P500, DJIA, ES, YM, or any other index, the TICK can be used as both an entry point and exit point strategy.
When trading anything on the market, the TICK is an absolute necessity to be aware of. It’s a dead giveaway for when large Hedge Fund or Bank buy programs hit the market; and when that happens it’s best to go with the big players than against them.
Think of the stock market like a truck moving down the road. You know the engine is running, you can hear it and you can see the truck moving. But without knowing anything about the engine underneath the hood, how likely are you to predict whether the truck will continue on its current path unimpeded, slow down due to a small malfunction, or worse yet, break down completely and stop abruptly due to engine failure? Think of the stock market as that truck running down the road, and think of the $TICK as constant diagnostic updates as to how well the truck’s engine is functioning. Using the TICK you’ll be able to analyze the stock market’s internal diagnostics at any given moment. These values when used correctly can tell you at any point in time whether the current trend still has energy to run up some more, or if the “engine” is getting close to its failure point and it’s time for a trend reversal or retracement.
Below we show a chart of the SPY (top) and $TICK (bottom) so you can see a side by side comparison. The two horizontal green lines on the TICK chart represent the +1000 and -1000 levels.
How do we use the $TICK?
The most popular use of the TICK is to fade (or go against a trend) when we see extreme tick readings. Most of the time the TICK will be oscillating somewhere between the -700 to +700 zone. We define “extreme tick reading” as +1000 or -1000, these are the points when we will initiate trades fading price movement. A common practice is to set audio alerts for the $TICK at the +800, -800, +1000, -1000 levels. These audio alerts allow you to trade the TICK without constantly having to watch the jagged chart. When your 800 level alerts go off, that serves as a warning that the TICK is getting closer to extreme levels. At this point you’d begin to pay more attention the TICK chart, waiting for that extreme reading. Once you see or hear your alert for the +1000 TICK reading, we initiate a short trade on the market (SPY, ES, YM, etc.). At -1000 we go long on the market. As you can see in the 5 minute chart above, these extreme tick readings coincide with reversal points in the market.
Furthermore, the TICK can be used as an emergency exit warning. If you are long the market, and you see a TICK reading of +1000, it’s time to get out of your trade, no questions asked. Your stop may not have been hit yet, your target price may not have been reached yet, but if a +1000 TICK alert goes off don’t fight it and don’t take the risk, just get out of your trade. After all, re-entry is only a commission away. Same rules go for being short and seeing a reading of -1000.
What’s the reasoning behind fading the TICK?
Think about an amateur trader. The see a huge uptrend in price but they don’t want to initiate a trade until they’re “completely sure” it’s a trend. They sit there and they wait and wait watching the price of the index increasing. After the index price has increased enough from large fund buying programs these amateur traders decide that the trend is real and buy into the index. However the large funds have already stopped buying a long time ago and they’re sitting there taking profits and handing off their positions to amateur traders just now entering the market. The money from these traders isn’t enough to sustain the upward trend and as a result price crashes, retracing back down. TICK traders see this extreme buying pressure and can position themselves to take advantage of the inevitable drop in price.
TICK Sub-panel Study
For those with experience trading the TICK, you know just how useful a sub-panel would be. We’ve realized this long ago and have since then created a Sub Panel study specifically designed to help people day-trade using the TICK.
The TICK subpanel download is available in our Indicator Database.