One of the hardest things traders do is try to read short-term sentiment about the market and often mistime trades because of less-than-optimal performance. Knowing how to use any of the indicators available on the market today, including the tick index, will dramatically improve Self-Directed Investors’ trading decision accuracy—but many just don’t know how or when to apply it.
The tick index is an essential tool for any trader involved in tick trading because it heuristicizes the net number of stocks ticking up versus those ticking down on a particular exchange. This indicator thus gives real-time sentiment and information on market sentiment, which can be aligned to create effective trading strategies capitalizing on short-term market movements.
There are the 3 Scalping Trading Strategies: Tick Range Trading, Tick Divergence Trading, Zero Line Crossing, explain what the tick index is and how it functions in tick trading
Only through the use of the strategies and being in tune with the tick index can one reasonably guarantee that to tune in more to market sentiment and interpret it better, hence making informed trading decisions for improved outcomes and enhanced trading performance.
What Is TICK Index?
A tick index, also known as a “tick,” is a financial markets’ technical indicator used to measure the short-term market sentiment of a particular stock exchange, for example, the New York Stock Exchange. That is the difference between the number of stocks ticking up, meaning trading at a price higher than the previous trade, against the number of stocks ticking, meaning trading at a price lower than the last trade, at any given moment.
Let’s look at a few Scalping Trading Strategies that combine TICK index with price patterns and important market levels:
- Tick Range Trading
- Tick Divergence Trading
- Zero Line Crossing
TOP 3 Scalping Trading Strategies
Strategy 1: Tick Range Trading
TICK overbought and oversold levels can vary depending on conditions. A reading above +500 indicates an overbought condition and a reading below –500 indicates an oversold market. Readings above +1000 or below –1000 are extreme conditions and we will try to concentrate our attention on these levels.
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. Here we have a one minute chart with a resistance zone (established by these swing highs). As the market traded into this resistance zone, the TICK moved above +1000, signaling an overbought market. Price then rejected that area, and the TICK indicator turned down.
A short sale would have been placed when price dropped back below the resistance level. A protective stop would be placed just above the high of rejection, which is the top of this swing move. Here’s an important point: you must scalp these overbought or oversold readings only if the price is at an important key level in the market. You don’t trade simply because the TICK is at 1000 or -1000. Use it in conjunction with price. Here are several valid TICK trades, around support/resistance levels.
Strategy 2: Tick Divergence Trading
The second strategy involves TICK divergences TICK divergence setups are probably the most popular use of the TICK indicator. Divergences between the 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 are often followed by short term reversals or corrections. In this example, after a swing to the upside, the price again retested its intraday high at the upper end of the resistance zone, and the TICK exceeded +1000. However, this TICK overbought high was lower than the previous one.
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 as soon as the price dropped back to lower limit of the resistance level. In the case of a long TICK divergence signal, price makes a new low whereas TICK indicators go to make a higher low. In this example, price fell to a new low but the corresponding TICK low was higher than its previous intraday low.
A long trade would have been entered when price traded back above the first low just, with a stop placed below the most recent low. As always, keep an eye on ley levels. If a divergence occurs at an important area, it has a better chance of completion. Also, wait for a trendline breakout to increase our chances of a successful trade. This way, you will also filter some bad divergences signals. Here are some valid TICK divergence trades.
Strategy 3: Zero Line Crossing
The third strategy involves a zero line crossing of TICK index, 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 trend. In this example, SPY was in an uptrend and the TICK reached an overbought level above +500, which indicates a strong, uptrending market. In such a situation, the goal is to buy on a pullback. As we talked in previous strategies about key levels, let’s use a FIB retracement to confirm the zero line crossover.
As the TICK dropped below zero, price also reached the 50 percent Fibonacci retracement line. The combination of the TICK oversold signal and the 50 percent retracement offered a higher probability for an up move. You can also use this technique with pivot points.
In this example, we have a downtrend, the TICK moved toward the 0 level and the price stopped at this pivot line. You can also add a moving average, to confirm better the short term trend.
Here are other examples of TICK zero line crossover trades, at the 50% Fib level.