Becoming a Better Trader: How The TICK Index Works

by | Feb 4, 2020 | blog, Editorial | 0 comments

Have you ever been invited to a party and notice you are the only one who missed the memo on what to wear?

Well, that’s how it feels when you are trading the markets blindly without market sentiment tools.  

As a trader, we use charts, indicators, and technical analysis to examine a stock.  So why are we ignoring the markets?

This is where a trader needs to leverage the power of market indicators.

I’m talking about the type of indicators that analyze the entire INDEX for potential weakness, money flows, and other important signals of strength that a trader can take advantage of.

The TICK Index is understood to be one of the most well-known market sentiment indicators used by a majority of industry professionals.

It’s time you put the TICK Index to work for you and start getting on the right side of the markets!


TICK Index


The TICK Index is also referred to as the Breadth Indicator since they analyze the “Breadth and Scope” of an entire index.  

The definition:  The TICK Index compares the number of stocks that are rising to the number of stocks that are falling on the New York Stock Exchange (NYSE).

How does this work?

Well, the index is a summation of stocks that are making an uptick and subtracts stocks making a downtick.

Or for you formula junkies:

TICK Index = Sum of up-tick stocks – Sum of down-tick stocks

For example: There are roughly 3,000 stocks listed on the NYSE.  What would the $TICK be if 2,000 socks have made an uptick and 1,000 stocks have made a down-tick?

Answer:  TICK Index = 2000 – 1000 = +1000 $TICK

In the US, the stock market is comprised of 5 major market indexes; the NYSE, Russel, S&P, Dow Jones, NASDAQ.

It’s important that you monitor the market that corresponds to the stocks you trade as each of these has their own corresponding TICK Index indicator.  

In the past, traders used to exclusively monitor the $TICK, the TICKIndex for the New York Stock Exchange, due to the lack of information, computer power, and data gathering technologies.

However, the advancement in technology and the sharing of large data have changed the playing field.

Now, traders are monitoring all major indexes at once and it is highly recommended that they take advantage of these new granular data. 

What are the major indexes?

New York Stock Exchange: $TICK

Russel 2000: $TIKRL

S&P 500: $TIKSP

Dow Jones: $TIKI


Here’s what it looks like…


Source: Think-or-Swim


This is a picture of the 5 Major Indexes and $Tick values represented with bar charts.  

Now…let’s take a look at an example of the $TICK…


Reading the $TIKSP (SP500 $TICK)


Source: Think-or-Swim


Source: Think-or-Swim


This image shows the decreasing $TIKSP corresponding with a rally in the morning on the SPY’s. 

As a trader that keeps a close eye on the market internals, an interesting picture was forming in the morning trading hours.  

So what does the $TIKSP chart tell us?

  • That the rally might be fake or over-exaggerated in the morning session.
  • Decreasing $TIKSP values from the pre-market indicates continued weakness.
  • $TIKSP lows  combined with red candles and the lowest value at 10:05 as markets are pushing higher


What do you do?


Well, at this point it is best to not chase the price but to wait for a bullish pattern to emerge or even a  pullback in price.


The outcome?  


Well, that is exactly what happened with the SPY’s during the morning trading session!  

The market rallied and then soon after sold back off to almost the open price before bouncing higher again.

Remember:  Divergence can be seen everywhere and not just on chart indicators.  The divergence between price and the market sentiment alluded to the trader to watch out.  The $TIKSP divergence with the SPY showed the trader that there was a weakness and not to trust the price action at that time. 

TICK Index – Why Does It Matter


Let’s step back now and take a look at the bigger picture for a minute and ask ourselves a few questions.

Why does this matter?

How is this relevant to a day trader?

Why do I need to pay attention to something that I do not trade?

To answer those questions quickly – it’s because there is never too much information to have as a trader!  The more information you have available, the better and faster your decision making is.

Remember – the TICK Index is recording the buying and selling action of an entire index!

The TICK tells us how many stocks are selling “at or below” the asking price and how many stocks are being bought “at or above asking price.”

Basically, it is a measure of buyers vs sellers to determine how aggressive one side is compared to the other (at this point in time.)

The next question you would want to ask is, is this extreme price action occurring on all markets or just on a single market index.  

If all major markets suddenly have aggressive selling pressure, they would want to know why this is happening.  

Perhaps, at that point, you would also not want to take a position until you found out exactly why.  


Trading strategy idea…


In the SPY above – you could anticipate the reversal by slowly adding shorts into the markets as the price rises.  Once the stock reverses, it’s best to scalp out profits since this is a short term momentum indicator and could reverse quickly.

Pro Tip:  If buyers suddenly overwhelmed sellers, you could see a push in the desired direction for another quick scalping opportunity.  

Now, let’s put this information to use!



How To Use The TICK Index


Now that we know why this is important, let’s see how we can use this information to make informed trading decisions. 

Understanding the TICK index offers traders a great short-term perspective of overall market sentiment and how the rest of the traders feel about market prices.

The ratio of stocks on an uptick versus the number of stocks on a downtick allows a short-term actionable data point for traders to take advantage of.

How to read the TICK Index “zones”:

  • Value between -300 and +200 indicates a neutral market sentiment and gives traders a “wait and see” signal.
  • Values greater than +200 indicate a bullish market sentiment and signals that other traders are bullish with their trading and a long position can be initiated.
  • Values less than -300 indicate a bearish market sentiment and signals that other traders are bearish with their trading and a short position can be initiated.
  • Values over +500 are considered extremely bullish 
  • Values over -500 are considered extremely bearish

TICK Index Finals Thoughts


The TICK Index has become one of my favorite supplemental indicators to watch to confirm price action and trends in a day trading system.  

Traders can take advantage of observing immediate market sentiment over the short-term and initiate trades to capture quick movements in the markets.

This small window of opportunity for a trade is limited and also provides insight as when NOT to take a trade if being used for risk management purposes.

Breadth indicators such as the TICK are proven tools in the markets by the number of traders that utilize this information daily.  

In order to implement this strategy into your daily routine and trading systems just take the next step to sign up now and learn my exact tips and tricks that I use every day to trade the markets!

Click here to sign up now!




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