Market Breadth Indicators Can Be The Key To Profitable Trading
For example, if the number of stocks on an uptick is 1,000 and the number of stocks on a downtick is 500, the NYSE Tick Index will be +500. These figures are constantly changing, but anything above zero is bullish and below zero is considered bearish.
I can tell you from personal experience that when used correctly the $TICK indicator adds tremendous value to intraday stock strategies. To gain real benefit from the $TICK indicator, you must only pay attention to the readings when they are at extreme levels. These are levels are positive 1000 or higher and negative 1000 or lower. Anything below positive 1000 or above negative 1000 is not considered in my opinion anything that will cause a shift in the movement in the markets, especially with the level of volume coming into the market these days.
High Tick readings occur mostly when large mutual funds initiate buy programs and sell programs, as I explained briefly a bit ago, these are computer generated orders to purchase or sell thousands of shares of different stocks simultaneously.
Buy and Sell programs can occur several times during the day when markets are being driven by strong fundamental data and volatility is high and sometimes hardly ever when the stock market is calm during quiet periods or during the holiday season. But when the Tick moves to the 1000 level repeatedly throughout the day, you can be assured that large mutual funds are either accumulating or selling share repeatedly throughout the day.
For entries I use the $Tick index as contrary stock swing trading indicator, this means that when you see a reading below -1000 there is a high likelihood that computerized selling is taking place; so when you see extreme levels, there is a high likelihood that the market is becoming oversold and that selling may be slowing down or coming to an end in the very near term.
Similarly, if you see a TICK reading above 1000, there is a high likelihood that large institutional buying is taking place and the stock market is going to stop climbing and possibly begin correcting in the very near future.
The way I incorporate the $Tick indicator into swing trading strategies very simple and very effective. If I’m about to initiate a long position and I see the Tick reading is -1000 or lower, I will simply wait for the sell program to end before initiating my long position.
If during the 90 second window period before I place my order in the morning, the Tick is reading is below -1000 I will just wait beyond the 90 second time period before entering. Once the Tick reading moves back up above -1000, I will enter regardless if I have to wait several minutes prior to entry. I find that waiting beyond the 90 second time period for the sell program to end decreases my risk on the trade substantially.
Similarly, if I want to enter a short position and the Tick reading is above 1000, I would wait beyond the first 90 second to enter the stock short position in the morning. I find that most buy programs end within a few minutes and waiting generally improves my fill price in most cases.