- NYSE TICK Index = Number of NYSE stocks on an uptick – Number of NYSE stocks on a downtick
- The TICKQ Index is the NASDAQ equivalent.
- The TICK belongs to a class of indicators known as market breadth indicators, which measure statistics on the market as a whole rather than on specific instruments.
There are two popular ways to use the TICK or TICKQ for intraday trades
- Using it as an oversold indicator so as to enter long trades.
- Looking for alignment or divergences between the TICKQ and the NQ, especially at support / resistance levels, to bolster your analysis to make a trade decision.
Using as an Oversold Indicator
There is a TradeStation article (link here) that showed some interesting back-testing results in this regard
- Most traders use the NYSE TICK Index as a contrarian indicator to initiate long positions (not short positions).
- Three scenarios were tested
- When the TICK Index crosses below the -600, -800, and -1000 levels, go long the ES and hold for the next 1 to 30 bars (each bar is 15 mins). This was tested over a period of 10 years.
- Scenario using the -600 level
- Showed very poor results.
- Scenario using the -800 level
- Showed positive net profit for all 30 sub-scenarios (i.e. hold for 1 bar, 2 bars, …., 30 bars)
- % of profitable trades ~50%
- profit factor ~1.1 (gross profit / gross loss).
- Best sub-scenario was to hold for 27 bars (i.e. 6.75 hours)
- Scenario using the -1000 level
- Showed positive net profit for almost all 30 sub-scenarios
- % of profitable trades ~47 to 56%
- profit factor of ~1.3.
- Best sub-scenario was to hold for 16 bars (i.e. 4 hours).
- Scenarios where you go short after the TICK Index crosses +600, +800, and +1000 levels, showed negative results for all 30 sub-scenarios.
- The market has a tendency to rebound after getting into oversold conditions (defined here as at least crossing the -800 level)
- What is interesting to me is the holding period of 4 to 6 hours seem to have worked well. Essentially that meant that the market tanked down on the open, scared everyone off, then proceeded to reverse and go up for the rest of the day.
Looking for Alignment / Divergences at Key Levels to Bolster Analysis for Trade Decision
This works essentially the same way as any other indicator used to look for divergences. There is a post written by DBPhoenix at Traders Laboratory which goes through this in more detail. Link here.