If you are an intraday trader and use the NYSE (or related) TICK indicator in your trading decisions, it’s very important to calibrate important TICK Levels with respect to volatility.
In simple terms, a TICK Value of 1,000 means different things during periods of high or low broad market volatility, and you can easily make mistakes if you don’t adjust your strategies to the current levels.
Let’s take a look at the current TICK Volatility Charts and compare current levels to the last few years.
Here’s the NYSE TICK Highs (blue) with a 20 day Simple Moving Average as a smoothing factor:
If you use the NYSE TICK in your intraday trading decisions, you know that the TICK itself mirrors broader stock market volatility, at least in terms of intraday TICK highs and lows.
For reference, the NYSE TICK calculates the number of NYSE issues ‘ticking’ up at a given moment minus those ‘ticking’ down.
It’s helpful for intraday traders to note short-term overbought or oversold situations as well as pinpointing divergences with intraday price highs and lows.
Some traders even design strategies to take profits on a buy/long trade when the TICK registers a certain level, like +1,000 or even take a short-sell trade on a perceived high TICK reading (again, like +1,000).
The same logic applies to exiting short-sold positions or perhaps putting on long/buy positions with a perceived low TICK extreme like -1,000.
The often overlooked problem with these strategies it that a fixed/permanent TICK value of plus or minus 1,000 means DIFFERENT things at different times.
What we’re seeing in the blue TICK chart above is the NYSE TICK Highs (+1,300, +1,400, etc) and then a 20 period moving average (black line) of these highs.
I placed a horizontal line at the famous +1,000 TICK level.
It is clear that there are periods where the 20 day (roughly one month) average tracks well above 1,000 (especially during sharp sell-offs) or even under 1,000 (during periods of low volatility ‘creeper’ trends).
If we use a simple strategy of exiting intraday long/buy positions when we see a +1,000 TICK reading (or initiating a new short-sell position), we see two clear problems that can occur:
When the Average TICK High runs above +1,000…
- it suggests that we’ll be taking profits too early because the TICK continued to rise a higher level.
- taking a short-sell position when the intraday TICK registers +1,000 can lead to instant losses as price (and TICK) continue pushing higher.
A lesser-known problem would be the fact that exit signals would not occur, nor would new short-sale signals trigger, if the intraday TICK high never reached +1,000 as would be the case when the average TICK high (or low) is beneath the popular 1,000 level.
The same logic is true when assessing intraday TICK Low extremes:
If we use -1,000 as a fixed “extreme” TICK Low, then this does us a disservice when the average TICK ‘extreme’ low changes as a factor of broader market volatility.
In other words, one must adjust TICK-based strategies to account for cyclical changes in market – and TICK extreme – volatility.
To keep up with this on your own, simply plot the NYSE TICK on a Daily Chart and create a 20 day (or related) moving average of the TICK Highs and the TICK Lows.
Note persistent extremes in the TICK as a factor of low or high broad market volatility.
The highlighted regions show periods of high market volatility and thus lower TICK lows (extremes) while the blue zone highlights a period of low average TICK extremes during the creeper-uptrend at the transition from 2010 to 2011 (during QE2).
We’re in another period of low stock market volatility and thus low average TICK extremes on both the intraday highs and lows.
For reference, the 20 day Average TICK High (extreme) is currently +918 and has been under 1,000 since early August.
The 20 day Average TICK Low (extreme) is currently -843 and has remained under -1,000 since late June/early July.
Continue following along with similar charts and adjust any intraday TICK strategies accordingly.
For more information, feel free to read prior updates on this topic:
- 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
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