The first post in this series and the second post took a look at the NYSE TICK and its relationship to price action as a way of identifying: a) whether buyers or sellers are dominating the market and b) the degree to which their buying or selling activity is actually able to move the market directionally. A valuable short-term edge sets up when buyers or sellers cannot move the market meaningfully higher or lower and then become trapped, setting up a move in the opposite direction.
If you click on the chart above, you'll see a different TICK statistic, the NQ TICK, which assesses buying and selling activity (upticks vs. downticks) for the NQ100 stocks. (Friday, 5/21; chart from Sierra Chart). The horizontal yellow line represents the zero level for the NQ TICK and the white line is a short-term moving average of the one-minute TICK values. At the bottom of the chart, we see the QQQ ETF. Notice the blue arrows showing areas where there is net buying among the NQ stocks that cannot move price higher. These become candidates for selling, as buyers are trapped and have to exit their positions. These same patterns also show up for the TICK covering the Russell 2000 stocks.
Recall that the TICK measures the short-term psychology of market participants. A different source of edge emerges when we place the different TICK measures next to one another. We can see if there is uniform strength or weakness across the SPX, NQ, and Russell stocks. If so, we have a nice tell for a trending market. Conversely, if we see that one TICK measure is noticeably stronger or weaker than the others, we have a great tell for sector rotation. And suppose we get a significant expansion or contraction of TICK extremes across the various measures. That's a sensitive tell for changes in market participation, which often leads to changing market conditions.
There is a world of valuable information available to traders beyond simple barcharts, trendlines, and support/resistance levels. There is little value focusing on trading psychology if you don't have a trading edge. Many trading edges come from understanding the psychology of the marketplace itself.
Further Reading:
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