Tuesday, August 04, 2009

Identifying the NYSE TICK Environment and Stock Market Sentiment


Here we see the distribution of one-minute NYSE TICK readings thus far this morning. Recent posts have focused on TICK as a way of gauging intraday buying and selling sentiment.

A quick and dirty way of assessing buying and selling pressure is to consider positive and negative TICK readings as separate distributions. Count the number of one-minute readings that exceed +800 and count the number that fall below -800.

For TICK to read more than +800 or less than -800, institutions have to be executing baskets of stocks that will either uptick or downtick simultaneously. Comparing the number of +800 and -800 readings gives a rough idea of whether institutions are leaning to the buying or selling sides.

(Why plus or minus 800 as the figure? That roughly corresponds to a "significant" TICK reading: approximately two standard deviations above or below the median reading).

In environments in which we have very few +800 or -800 readings, we can infer that institutions are not active on either the buy or sell side. Those are often range markets. That is the case so far in today's trade (though buying sentiment is overall ahead of selling, with several near- 800 readings).

In environments in which we have many more +800 than -800 readings, we can infer an upside trending market. A downtrending market is one in which the -800 readings handily exceed those that are +800.

And how about environments in which we see many +800 *and* many -800 readings. Those "two sided markets" are often ones in which algorithmic/program trading is active, running markets up and down. They often are range markets, but volatile, choppy ones.

Knowing the TICK environment you're in can be very helpful in framing how you want to be trading, as it enables you to align yourself with the sentiment of large traders that move markets.
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7 comments:

Buck said...

Dr. Brett,
Could you explain why the chart title is NYSE "Cumulative" Tick. As I understand your post yesterday the cumulative tick is different - a cumulative average - than a 1 min chart with ear bar showing OHLC.
Thanks,
Buck

Buck said...

Dr. Brett,
I continute to be confused regarding $TICK readings. I show 7 readings this morning less than -700, which is in contrast to your 10:19 post. This was brought up last week by others. Why the discrepancies?
Thanks again.

pdmoney said...

So I thought holding winners was among the hardest things to do in trading. Apparently I have found something harder: Buying stocks today that gapped up 8% (or more) yesterday with the anticipation that they can run another 5%. In this environment it seems to work. This is extremely hard to do!

Brett Steenbarger, Ph.D. said...

Hi Buck,

Yes, it's confusing. NYSE calls TICK "Cumulative TICK" since it is cumulating upticks and downticks across all NYSE issues. I refer to Cumulative TICK as a cumulative line of individual TICK readings.

Many people seem to have data feeds that are giving unusual TICK readings. I don't have an explanation for that. My data come from e-Signal; I'm finding the data from certain brokers to not be reliable.

Brett

Cheater5 said...

Dr. Brett:

Do you use the High/Low of the Tick bar or the Close of the Tick Bar?

Thanks.

JimRI said...

Right now, I happen to have three data feeds. One is esignal, another from Schwab (which actually has three they use internally for redundancy) and one from ThinkorSwim.

They seem to be updated at different times and perhaps filtered differently. But they do go in lock step with some delays. Right now one reads -388 and another -523. From the time I started writing them both went below -800 and back up.

I think I read where NYSE vends this every 6 seconds.

Brett Steenbarger, Ph.D. said...

Hi Cheater5,

(H+L+C)/3 for each minute when calculating cumulative TICK; H and L for looking at values above +800 and below -800.

Brett