Looking to improve your trading edge? The NYSE Tick is the perfect day trading indicator to do just that.
It’s one of the easiest indicators to implement with any trading strategy and will instantly boost results.
In this post you will learn how to read the NYSE Tick indicator to help you time your entries and exits better, resulting in more profit.
What is a Tick?
A tick is simply the minimum movement either up or down of a security.
Since 2001 the minimum movement for stocks trading above $1 has been 1 cent.
If you trade Forex a tick is similar to a pip which is equal to 0.0001 for currencies that are traded to 4 decimal places.
Future contracts have different tick values depending on the security you’re trading. You can look up contract specs for eMini products at http://www.cmegroup.com/.
A security is considered to be on an uptick when the last price traded is higher than the previous price.
For example, the last trade on Microsoft (MSFT) was $60.10 and the trade prior to that was at $60.09. MSFT would currently be on an uptick.
Opposite of an uptick, a security is considered to be on a downtick when the last price traded is lower than the previous price.
For example, the last trade on MSFT was $60.25 and the trade prior to that was at $60.26. MSFT would currently be on a downtick.
What Is a Tick Index?
A tick index compares the number of stocks that are rising to the number of stocks that are falling for a given exchange. A tick index gives traders a short term snapshot of market sentiment.
Throughout this article I will be referring to the most popular tick index, the NYSE Tick.
NYSE Tick Index
The chart above is a one minute chart for the NYSE Tick Index.
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The NYSE Tick Index is calculated by taking all the NYSE stocks on upticks less all of the NYSE stocks on downticks.
For example, assume the NYSE tick index comprises roughly 2,800 stocks. It fluctuates over time as stocks are added and removed from the indice…
If 1,800 of those stocks are on an uptick and 1000 on a downtick the NYSE Tick reading at that moment in time would be +800.
The value of the index provides a short term view of market sentiment. (Bullish or Bearish)
In this example with a reading of +800 there is a cumulative net of 800 more stocks on upticks versus downticks. Buyers are entering the market and taking the offer, thus we have bullish sentiment.
Key NYSE Tick Levels
Market bias is considered to be neutral when the tick reading is close to the zero level. (Black line above)
A positive tick count (green highlight) signals bullish sentiment and a negative tick count (red highlight) signals bearish sentiment. The higher or lower the Tick Index reading the stronger the sentiment.
What’s really happening when we have a positive or negative tick count?
When markets are going up traders are taking the offer resulting in more upticks than downticks. (Bullish Sentiment) When the markets are going down traders are hitting the bid resulting in more downticks than upticks. (Bearish Sentiment)
Now that you have the basic understanding of what a Tick Index is let’s look at some practical examples.
How To Trade Using The NYSE Tick
“One of the most helpful things that anybody can learn is to give up trying to catch the last eighth – or the first. These two are the most expensive eighths in the world. They have cost stock traders, in the aggregate, enough millions of dollars to build a concrete highway across the continent.” ~ Jesse Livermore
Jesse hit the nail on the head with the above statement. Most newbie traders will find themselves getting long at the end of a move or short at the bottom of a move. Sound familiar?
There’s an easy way to avoid this by using the NYSE Tick to determine more precise entries.
On the 1 minute chart above of the eMini S&P 500 you can see there’s a high correlation between Price and the Nyse Tick.
Logically this makes sense. For a security to rise traders have to be taking the offer resulting in an increased tick count. In order for a security to fall traders have to be hitting the bid which decreases the tick count.
In order to understand how this can be used to improve your entries ask yourself the following question.
What typically happens at a major market reversal?
Price will go up or down to an extreme where traders who are in losing positions will have to puke out. (close position) Furthermore, traders not in positions will hop on board and chase the move out of greed. This results in a tick extreme, which I like to call an exhaustion zone.
Exhaustion Zone: When the NYSE Tick reaches an extreme where the probability of a reversal is increasing.
An analogy I like to use is to compare the tick reading to a spring.
In the above image the spring on the right is being pulled harder than the spring on the left. If you were to release the hook on both springs, the spring on the right would snap back further and faster.
Now the spring obviously could be pulled harder and extended even more but as it’s extended the tension is increased and the probability of it correcting becomes greater. Thus why you want to take setups only when the spring is getting extended or in the exhaustion zone.
What tick value you ultimately decide to be a tick extreme will be determined by volatility. On higher volatility days the tick extremes will be larger and you need to adjust accordingly. You can get a pretty good idea of what you should consider an extreme to be for the day by taking a look at the tick during the first 30 minutes of the open.
As a rule of thumb I consider anything above 200 or below -200 to be an exhaustion zone. On higher volatility days I will increase the number.
On the above chart the red line represents a tick reading of -200 and the green line a tick reading of 200.
Assuming volatility wasn’t super high on the day I would consider the price to be in an exhaustion zone when the tick was above 200 or below -200.
This doesn’t mean I will go blindly short when the tick is above 200 or long when it goes below -200. It means that if my trading strategy signals a long setup I won’t take it unless the tick is below -200 and for a short setup I will want to see the tick above 200.
This is the primary way I use the NYSE Tick in my trading but there are a few more beneficial ways to use the tick. Let’s take a look at them.
Intraday Tick Highs & Lows
Whether you’re a trend trader or a countertrend trader you will want to pay close attention to intraday high and low tick readings. Remember that at major market reversals the tick index is most likely hitting an extreme.
The result is a high tick reading signaling a potential reversal, which is exactly what we’re looking for.
On the 1 minute chart above you can see the ES (eMini S&P 500) traded to new lows on the day while the NYSE Tick was also making new lows at approximately -550.
I would react to this chart in the following ways:
- A low tick at new lows for the day could be a major reversal. I most likely don’t want to go short into any potential up move at this point.
- If I’m already short, I would want to tighten my stop realizing a large reversal may be coming.
- If my trading strategy signals a long position it’s validated due to the fact that we just hit a new low with a low tick.
Again… I’m not going to just go blindly long, it has to line up with my trading strategy. The very next move could be lower with an even lower tick count.
Still with me? Here’s the biggest take away…
When you see the NYSE Tick sets a new high at highs for the day be careful going long. When price is hitting new lows for the day as well as the NYSE Tick, avoid going short.
If your strategy signals a long position which is further validated by a low NYSE Tick reading at lows for the day, look for a larger take profit as the trade most likely will run. Look to do the same on the short side when your strategy signals a short after a high tick reading.
Nyse Tick Divergence
Trends are composed of price swings where in an uptrend higher highs (HH) are followed by higher lows (HL) and in a downtrend lower lows (LL) are followed by lower highs. (LH)
We can use the NYSE Tick Index to determine when momentum is slowing down.
If price is making higher highs, the nyse tick index should also be making higher highs. If price is making lower lows, the tick index should also be making lower lows (LL).
If they’re NOT, then price and the nyse tick are diverging from each other, thus “divergence”.
There are two types of divergence, regular and hidden. Let’s take a look at both.
Regular divergence is used to spot a potential trend reversal. When regular divergence occurs it’s a sign that momentum is slowing down and a potential reversal may be coming.
There are two types of regular divergences: bullish and bearish. Let’s look at an example of both.
On the chart above the ES is breaking to higher highs while the NYSE tick is making lower highs, an example of bearish divergence.
Simply put… less traders are taking the offer at new highs when compared to the previous high.
If less people are interested in buying at the new high, momentum is obviously slowing down signaling a potential reversal.
Now if price is making higher lows and the NYSE Tick is making lower lows, you have regular bullish divergence as seen below.
You can also use divergences to spot a trend continuation known as hidden divergence. Once again hidden divergence can be both bullish and bearish.
Hidden Bearish Divergence
On the chart above the ES made lower highs while the NYSE Tick made higher highs.
Even though the bulls stepped in with more effort than the previous rally (seen by the higher tick count), they couldn’t take price to new highs.
Sellers stepped in on the offer preventing the rally signaling a continuation of the downtrend.
Hidden Bullish Divergence
On the chart above the ES made higher lows while the NYSE Tick made lower lows signaling bullish divergence a potential trend continuation.
Bears stepped in trying to take price to new lows with even more effort that the previous low yet failed.
Other Tick Indicators
There are several tick indexes available depending on what markets you trade.
$TICK – NYSE Tick Index – The main tick index I use to trade U.S. stocks and Indices
$TICKQ – NASDAQ Tick Index
$TICKA – Amex Tick Index
I personally only use the NYSE Tick even though I trade multiple markets such as the eMini Nasdaq 100, S&P 500, and Dow. Feel free to check them all out.
Markets to Trade with NYSE Tick
I use the NYSE Tick to trade the S&P 500 and the Nasdaq 100. Mainly because futures are my preference due to the tax advantages here in the United States.
You can use the NYSE tick to trade individual stocks, futures, forex, oil, gold, and much more. Realize the correlations between the NYSE tick and markets like Forex or Gold are going to be different.
For Forex traders, the correlation between the S&P 500 and the U.S. Dollar since 2011 has been .38.
Obviously you’re going to see a higher correlation between the NYSE Tick and the S&P 500 than other securities, but it can still be used across the board.
NYSE Tick Indicator Downloads
ThinkOrSwim – ThinkOrSwim platform is free for U.S. clients once you register, you don’t actually have to fund your account.
Sierra Charts – I traded with Sierra Charts for years prior to switching to MotiveWave primarily because I’m a Mac user. SC is extremely robust and very light weight.
MotiveWave – I recently made the transition to MotiveWave and am very happy I did. Great user interface and everything an order flow trader needs to be successful.
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The NYSE Tick is a powerful tool to help you time your entries and exits better.
You can use it to spot trend reversals with regular divergence and trend continuations with hidden divergence.
Start by simply adding it to your charts and paying attention to it. It will take time to become comfortable and to be able to read the tick count. See how it can play an advantageous role in your trading strategy.In time, it will greatly improve your order entries, increasing your profits and keeping you out of false moves.
If you like the NYSE Tick check out some of these other order flow indicators.
If you have any questions on the NYSE Tick make sure to leave a comment below!