Daytrading With The NYSE Tick Indicator

There is always a correlation to some type of data, be it news, earnings, or the action of related stocks. Finding a reason behind the move can give traders an edge.

THE TICK INDICATOR
There is an important indicator that can lead the stocks to move in certain ways. It is always a good idea to monitor the breadth of the big players and watch the movements of the collection of large-cap stocks that influence the stock a trader wants to trade. The NYSE tick indicator takes the stocks in an exchange and shows how many are ticking up and how many are ticking down. For example, at a time when 500 stocks may be moving up while 400 are moving down, the reading would be +100. So the uptrend momentum occurs when it is in the positive number while a downtrend tendency occurs when the number shows a negative reading.

APPLYING TICK
So how does one use the tick indicator to increase his or her advantage in profiting from the market? The first task is to analyze the immediate trend in the last hour or last few hours (depending on the time frame used, five-, 15-, 60-minute, or other). The way to determine the trend is determining pivots such as higher highs and lows for uptrends or lower highs and lows for downtrends.

Once the short-term trend has been established, we look at the NYSE tick chart to find the setup. The best entry, as everyone knows, is buy/short the pullbacks. We turn to the $TICK chart (Figure 1) to look for one extreme of the reading to find the right spot to trade. If the stock is in an uptrend, we look for an extreme negative reading to go long; when it turns upward, we take a long entry. If the stock is in a downtrend, we look for an extreme positive reading to go short; when it begins turning down, we go short. Let's take a look at an example.

FIGURE 1: NYSE $TICK CHART. Here you see a display of the values and the reading of the sentiments of the market.

Looking at the chart of RIMM in Figure 2, we established that the trend has been down since the opening bell. Now, take a look at the $TICK chart. At 3:25 pm the $TICK moves into positive territory (Figure 3).

FIGURE 3: THE TICK CHART. The tick chart tells you if there is more buying or more selling at any moment in time.

Next, look at the price chart to see what the stock price is doing. At 3:25 pm the stock of RIMM has retraced from its downtrend, so a pullback entry is imminent (Figure 4). At 3:26 or 3:27 pm, the $TICK turned down toward a negative reading. With the confirmation of the price action, breaking the low of the previous bar at 3:29 pm, a short entry is taken (red down arrow in Figure 5).

FIGURE 5: MAKING THAT TRADE. When price action and the tick correlate then it's safe to place a trade.