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TRADING Strategies

INTRADAY trading with the

TICK

Indicators such as the TICK can reveal the internal strength

(or weakness) of the market and highlight intraday turning points.
Heres how one trader combines the TICK with support and resistance
analysis and retracement levels.
BY CHRISTOPHER TERRY

he TICK is a market breadth

indicator that measures the
difference between the
number of New York Stock
Exchange (NYSE) stocks trading on an
uptick (i.e., last price higher than the
previous price) and the number of stocks
trading on a downtick (last price lower
than the previous price).
For example, if at a given moment
5,200 NYSE stocks were trading up from
their previous prices and 4,800 were
trading down from their previous prices,
the TICK reading would be +400 (5,2004,800). The TICK indicator should not be
confused with the term tick, which is
used to describe a minimum price fluctuation.
Positive, rising TICK readings are a
bullish signal; the opposite is true for a
negative, declining TICK. (However,
very high or low TICK readings often
indicate temporary market exhaustion.)
A declining TICK in a rising market
indicates stocks are beginning to trade
off their highs, signifying the uptrend
may reverse, at least temporarily.
Likewise, a rising TICK in a declining
market indicates stocks are starting to
trade off their lows, and a reversal of the
downtrend is possible. For more information on the TICK, see TICK basics,
p. xx.
2

FIGURE 1 TICK AND RESISTANCE

The TICK indicator moved into overbought territory as SPY tested its
resistance zone. The combination of these signals set the stage for low-risk
short trades. The second short sale was also supported by the divergence
that occurred between the higher price high and lower TICK high.
S&P 500 Index Trust (SPY), one-minute
108.80

Protective stop

108.70

Short-term
double top

108.60

Protective stop
Go short

Go short

108.50
108.40
108.30
108.20
108.10
600.00
400.00

TICK

Overbought
Overbought

200.00
.00
-200.00
-400.00
9:42 9:55 10:08 10:21 10:34 10:47 11:00 11:13 11:26 11:39 11:52 12:05 12:18 12:31

Source: TradeStation Platform by TradeStation Group

When confirmed with other tools,

TICK readings can be used to identify
intraday turning points. Well look at a
few examples that combine the TICK
with price patterns and Fibonacci
retracement levels.

TICK overbought and oversold levels

can vary depending on conditions. For
the purposes of this article, a reading
above +500 indicates an overbought condition and a reading below 500 indi-

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FIGURE 2 BULLISH TICK DIVERGENCE

SPY made a lower low but the TICK made a higher low, indicating growing
internal strength. This divergence was followed by a quick rally.
114.70

S&P 500 Index Trust (SPY), one-minute

114.50
114.30
114.10
113.90
113.70

979.00

Go long
TICK

Protective stop

600.00
200.00
-200.00
-600.00
10:10 10:45 11:20 11:55 12:30 13:05 13:40 14:15 14:50 15:25

11/23

10:25

Source: TradeStation Platform by TradeStation Group

cates an oversold market. Readings

above +1000 or below 1000 are extreme
conditions.
A simple trading approach is to place
trades when the TICK signals an overbought or oversold market as price is
testing the support or resistance levels of
a trading range.
Figure 1 (opposite page) is a oneminute chart with a resistance zone
around 108.72 to 108.90 (established by
the two highs at the far left of the chart).
As the market traded into this resistance
zone around 10:40 a.m., the TICK moved
above +500, signaling an overbought
market. Price then traced out a very
short-term double top, and the TICK
indicator turned down. A short sale
would have been placed when price
dropped back below the 108.72 resistance level. A protective stop would be
placed just above the high of the double
top, which is the top of this swing move.

TICK divergence setups (as described in

the book Street Smarts by Laurence

Connors and Linda Bradford Raschke)

are probably the most popular use of the
TICK indicator. Divergences between
price and the TICK occur when price
makes a higher high (or lower low) and
the TICK makes a lower high (or higher
low). These signals often accompany
market reversals or corrections.
Approximately an hour after the first
trade in Figure 1, price again retested its
intraday highs at the upper end of the
resistance zone, and the TICK exceeded
+500. However, this TICK overbought
high was lower than the previous TICK
overbought high. This divergence
between price and the TICK meant the
market was rallying with fewer stocks
making upticks a sign of internal
weakness and set up another short
sale opportunity when price dropped
back below the lower resistance level.
In the case of a long TICK divergence
signal, price makes a new low but the
TICK indicator makes a higher low. In
Figure 2 (above), price fell to a new low
at approximately 1:05 p.m. but the corresponding TICK low was higher than its

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Key terms
Breadth: The internal strength
or weakness of the market that
is, the strength or weakness not
immediately reflected in price.
Breadth is typically derived from
some calculation of the number of
advancing stocks vs. the number of
declining stocks, the volume of
these stocks, or some combination
of the two. In addition to the TICK,
breadth is reflected in such
indicators as the advance-decline
line and the TRIN (Arms Index).
Fibonacci retracement:
Percentages based on ratios of
numbers from the Fibonacci
sequence (see Technical Tool
Insight, p. xx) that some traders use
to determine likely retracement
levels and profit targets. The most
commonly used Fibonacci
retracement percentages (rounded
off) are 38, 50 and 62 percent.

previous intraday low at 10:45 a.m. A

long trade would have been entered
when price traded back above the first
low just below 113.70, with a stop placed
below the most recent low.

In addition to its usefulness in trading

ranges, the TICK can also set up trades
in trending markets. In a strong uptrend,
any countertrend movement is usually
marked by the TICK fluctuating
between 100 and +100. In these situations, 100 becomes the oversold level.
More often than not, the TICK tests the
zero line. These tests offer opportunities
to enter in the direction of the prevailing
continued on p. x
3

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FIGURE 3 PULLBACK 1
A move by the TICK below zero coincides with a 50-percent retracement
of the earlier upmove. The TICK then moves back above zero, and a long
trade is triggered when price breaks above the upper channel line.
S&P 500 Index Trust (SPY), one-minute

108.60
108.40

Previous high is used as profit target

108.20
108.00
107.80

Go long on move
above channel line

107.60

38%
50%
62%

Price bounces off

50% retracement line.

107.40

TICK

700.00
500.00
300.00
100.00
-100.00

TICK below -100

10/22 9:45

9:58 10:11 10:24 10:37 10:50 11:03 11:16 11:29 11:42 11:55 12:08 12:21

Source: TradeStation Platform by TradeStation Group

trend.
At the beginning of Figure 3 (left),
SPY was in an uptrend and the TICK
reached an overbought level of +600,
which indicates a strong, uptrending
market. In such a situation, the goal is to
buy on a pullback.
Countertrend channel lines are drawn
as price turns down a little after 10 a.m.,
forming the pullback. As the TICK
dropped below zero twice between approximately 10:11 and 10:30 (and below
100 the second time), price tagged the
50 percent Fibonacci retracement line.
The combination of the TICK oversold
signal and the 50 percent retracement
made the odds good for an up move.
This next development to look for is a
move above the upper channel line,
which would indicate the pullback has
ended and price could continue in its
previous direction. When the upper
channel line is penetrated, go long with
a stop below the low of the entry bar.
Take profits at the previous high.

TICK basics

he TICK is a very short-term (intraday) indicator

that measures the bullish (upticking) or bearish
(downticking) activity in NYSE stocks throughout
the day. TIKI is the symbol for the same indicator calculated
on Dow Jones Industrial Average stocks; some data services
also supply the TICK calculated on Nasdaq stocks.
The TICK is a breadth indicator that gives traders an intraday look at the internal strength or weakness of the market that is, the strength or weakness beyond whether the
overall market is up on a point or percentage basis. By comparing the number of stocks advancing to stocks declining,
the indicator reflects the markets up or down momentum at
a given moment.
For example, if the S&P 500 index is up marginally but
downticking stocks are consistently outnumbering upticking
stocks (and the number of downticking stocks is increasing,
reflected by a downtrending TICK indicator), it is likely that
only a relative handful of strong stocks are propping up the
overall market. When buying completes in these stocks, a
down move may result.

Two contrarian uses of the TICK indicator are to look for

divergence between price and the indicator, and to use high
or low TICK readings to identify momentum extremes (similar to how many traders use oscillators like the relative
strength index or stochastics to locate overbought and oversold points).
A divergence occurs when price makes a new high (or low)
but the TICK makes a lower high (or higher low), failing to
confirm the price move and warning of a slackening of
momentum and potential stall or reversal. A similar phenomenon would be a steady trend in the TICK that runs
counter to the trend of the market. Extreme high or low
TICK readings sometimes accompany market climaxes.
Because the TICK is a snapshot of the market at a given
moment (and is thus very volatile), it can be deceptive.
Because of this, the TICK is commonly smoothed with a 10period moving average to remove some of the noise and
better reveal the indicators direction and patterns. For a
more detailed discussion of TICK indicator basics, see
Indicator Insight, Active Trader, March 2001, p. 112.

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However, patience is required when

trading this setup. The TICK should be
given time to bottom out in an uptrend
or top out in a downtrend; dont expect
a sudden price reversal when the TICK
indicator simply hits the zero line.
Other technical factors should be consulted before entering any trades, such
as employing a price pattern, as presented here.
Figure 4 (top, right) provides a similar example. It shows a very high TICK
reading of +900, although price continued to move higher. At around 2:20
p.m., price retraced approximately 38
percent (another Fibonacci retracement
level) and a countertrend channel
formed. A buy signal occurred after the
TICK crossed back above the zero level
and price broke out above the upper
channel line. After that, the stock
resumed its uptrend, including a gapup open the next day.
However, there are times when the
market is trending and the TICK does
reach the overbought (+500) or the oversold (-500) levels. In Figure 5 (bottom,
right), SPY and the TICK both made
new lows around 10:15 a.m. The TICK
broke below 200, at which point a
slight countertrend rally ensued in SPY.
A combination of bearish indications
signaled a short trade: The countertrend
rally reversed after approaching the 38percent retracement level, and the TICK
rose to just below +500 (on a oneminute close basis; it exceeded +500
before the bar closed), indicating an
overbought condition. Go short on a
breakdown of the lower channel line,
with a stop at the high of that bar.
During an uptrend, look for the same
setup, in reverse, if the TICK drops to
500.

FIGURE 4 PULLBACK 2
In this pullback, price retraces to the 38 percent line. The previous high
provides a price target for the trade.
114.00

S&P 500 Index Trust (SPY), one-minute

113.50

Go long

113.00

Profit target
112.50
112.00

38%
50%
62%

111.50
111.00
900

TICK

600
300
0

Oversold
12:20 12:50 13:20 13:50 14:20 14:50 15:20 15:50 11/13 10:05 10:35 11:05 11:35

Source: TradeStation Platform by TradeStation Group

FIGURE 5 GOING WITH THE TREND

A retracement close to the 38-percent Fibonacci level and an overbought TICK
reading around +500 set up a short trade in the direction of the longer-term
trend.
S&P 500 Index Trust (SPY), one-minute

115.40
115.20

62%
50%
38%

115.00
114.80
114.60
114.40
114.20

Go short

114.00

As these examples suggest, the TICK

indicator should be used to set up or
confirm a trade, not as a stand-alone
tool. By utilizing the TICK in conjunction with price patterns, technical indicators, and in the context of the overall
trend and market environment, you can
make better buy and sell decisions.
For more information on the author see p. xx.

113.80
600.00

TICK

400.00

Overbought

200.00
.00
-200.00
9:33

9:40

9:47

9:54 10:01 10:08 10:15 10:22 10:29 10:36 10:43 10:50 10:57

Source: TradeStation Platform

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