13 Jul

Tips And Tricks Of Using The TICK Index

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Today I want to share with you an indicator that is used to read the market heartbeat 

And it’s probably unlike anything you’ve ever seen before. 

It’s called the TICK Index…

And I’ve discovered a way on how to use it which will allow me to see how strong or weak the market is. 

It tells me information about a stock I would never know… such as momentum and strength of a movement.

This indicator is understood to be one of the most well known market sentiment indicators used by a majority of the industry professionals.

It’s time you put the TICK Index to work for you today!


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 up-tick and subtracts stocks making a down-tick.

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

Don’t know what the TICK looks like?

Here’s a chart of the $TICK Index for your reference


Source: Thinkorswim


And when combined with the SPY…


Source: Thinkorswim


Now… I know this might look a bit complicated, but it’s really not once you understand what you’re looking for.



Understanding The $TICK


When the SPY’s were starting to trade lower shortly after the market opened, you might be wondering how “real” this sell-off is.

And to the untrained and emotional trader, you might start getting short once the markets made lows around 10am

But that’s where everyone gets it wrong!

Instead… the real trade was to go long the markets at that level!


Because if you were looking at the $TICK Index, you would see that the value was only -800, not even in the extreme territory of -1000.  

Meaning that the markets internally didn’t support the selloff…but instead probably were buying these lower prices to move the market higher.

And that’s exactly what happened!

So…to recap

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


What does the $TICK chart tell me?


The TICK Index shows:

  • That the selloff might be fake or over exaggerated in the morning session.
  • Decreasing $TICK values indicate weakness, but never became a market-wide selloff
  • $TICK lows of -800 and not -1000 or lower means that the selloff is fake and the markets actually want to go higher


Why Does Reading The Market Internals 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, then I 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.


Bonus Tips


In the SPY above – you could anticipate the reversal by slowly adding long stock into the markets as the price drops.  Once the stock reverses, it’s best to start looking for exits from winning trades.

Pro Tip:  If buyers suddenly overwhelmed sellers, you could see a push in the desired direction for a full day momentum event.  

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 the market prices.

The ratio of stocks on an up-tick versus the number of stocks on a down-tick 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


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 to Daily Deposits now!


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