If you use the NYSE TICK (or related Market Internal) in your intraday or short-term trading decisions, it’s important to know what levels are important for the indicator and they do change.
Let’s take a look at the daily distributions and key high/low levels in the NYSE TICK and learn a quick lesson in “TICK Volatility.”
Here’s the Distribution (similar to Market Profile charting) for January 2013 in the NYSE TICK:
Let’s take this chart step-by-step.
First, it’s a type of Market Profile chart where intraday readings are turned into a distribution or frequency table and then turned vertically instead of the traditional horizontal way to display a distribution grid.
Each day provides a distribution from open to close of all the number of times a particular TICK value occurred.
In simplest terms, most of the intraday TICK readings range from -400 to +400 though as I drew in the highlighted region, these clusters tend to shift as TICK Volatility shifts.
Perhaps the most useful information in the chart above is the visual representation of intraday TICK highs and TICK lows as highlighted in the green and red regions.
At a glance, we can quickly see the extremes during the month in the TICK and these tended to occur from +800 to +1,000 on the upside (high TICK reading of the day) and from -700 to -900 on the downside (low TICK reading of the day).
The main idea is that if we use the NYSE TICK in our analysis or intraday trading decisions, using a fixed value like +1,000 or -1,000 is insufficient because not only does the distribution of daily TICK readings vary over time, but more imoprtantly the pattern of TICK highs and TICK lows change as a function of volatility.
In simplest terms, a TICK Reading of +1,000 (which may be a trigger for taking profits on a long position or putting on a new short-sale position) may never occur when TICK Volatility is low, as was the case in January.
In January, 4 of the 20 trading days in January (20%) had intraday TICK Highs greater than +1,000 while ZERO of the trading days in January saw a TICK low of at least -1,000.
In direct terms, if you use -1,000 as a filter to take profits on a short position intraday, or put ona new long position (expecting an intraday reversal), then you never got a signal in the month of January.
Keep in mind that January saw a series of day-over-day rallies where the index rose over 5% (putting into context why the TICK tended to skew to the upside).
The main idea – as with all of my quick update/research posts on the TICK, is that we must take into account volatility when using absolute TICK levels for trade entry triggers (or even assistance) or profit-taking signals.
A specific TICK high or low value may mean one thing in a low volatility environment, and a completely different thing in a high volatility environment (where price will consistently make intraday TICK highs greater than +1,300 for example).
For more information on this intraday trading topic, view prior update posts:
- January 2013: “Intraday TICK High/Low Statistics from 2008 to 2013“
- January 2013: “Updating TICK Volatility Charts to Start 2013“
- October 2012: “Updating TICK Volatility for Intraday Traders“
- December 2011: “Updating TICK Extremes for Trading Reference“
- Updating TICK Extremes for Intraday Traders (June 28, 2011)
- “Why You MUST Consider Volatility When Trading with the TICK”
- “Research in Behavioral Changes in the TICK Over the Last 10 Years”
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
Corey’s new book The Complete Trading Course (Wiley Finance) is now available!