The NYSE TICK is a commonly used day trading indicator. In this article, I’m going to explain what exactly the TICK is and share the two surprising ways I use the TICK as a valuable indicator in my own day trading.
What Is The TICK?
The TICK measures the number of stocks on the NYSE last trading on an uptick versus those last trading on a downtick. The TICK subtracts the number of stocks trading on a downtick from the number of stocks trading on an uptick to give a single number as a reading.
For instance, a TICK of +200 would mean that 200 more stocks in the NYSE last traded on an uptick versus those that last traded on a downtick. Conversely, a TICK of -450 would mean that 450 more stocks in the NYSE last traded on a downtick versus those that last traded on an uptick. The TICK is a very short-term indicator of market direction as it’s constantly fluctuating. In general, positive TICK numbers are bullish for the market and negative tick numbers are bearish.
Most people use the TICK as a simple barometer of overall market sentiment, viewing positive TICK numbers as bullish and negative TICK numbers as bearish. While there’s nothing inherently wrong with that approach, I think using the TICK that way isn’t particularly effective and overlooks the potential power of the TICK as an indicator.
I use the TICK for two primary purposes in my day trading:
1. Market Turning Points
The first way I use the TICK is as a contrarian indicator during market extremes to identify market turning points. If you watch the TICK for any period of time, you’ll notice that it changes pretty randomly with the direction of the overall market. However, in those rare times when the market experiences a sharp rally or decline, I look for an extreme reading in the TICK to establish a countertrend position, betting on a retracement. The TICK is the best indicator I’ve found for identifying the exact point in an explosive move up or down where a turning point is likely to occur.
Specifically, I’m looking for TICK readings in excess of +1000 or -1000 before establishing a countertrend position. These extreme readings often indicate the presence of computerized market buy or sell programs that quickly shoot the market up or down before the market snaps back like a rubber band. It’s important to note that although the TICK is useful for identifying these market turning points, like all indicators the TICK is not perfect. As always, be sure to have a protective stop in place to manage your risk.
The second way I use the TICK is to assist me in executing my trades. A positive tick reading shows that more stocks are trading at the offer price as compared to those that are trading at the bid price. Thus, if I’m trading a stock that tends to move with the overall market, getting filled at the bid price while most of the rest of the market is paying the offer price (remember that the offer price is always higher than the bid price) usually means I’m doing a good job of executing my trade. The converse is also true: if the TICK is negative, then getting filled at the offer price is usually advantageous (because the TICK is indicating that the majority of stocks are trading at the bid price). These sorts of execution tweaks may only net you a few pennies per trade, but they can really add up over the long run.
The NYSE TICK is a valuable tool for day traders as it gives an insight into the market as a whole with a single number. While most traders use the TICK to hop on board developing market trends, I’ve found it more effective when used to identify market turning points as well as a tool to help me execute my trades efficiently. If you’re thinking of incorporating the TICK in your own trading, I would recommend watching the TICK on a daily basis to see how it might help your given trading style.