I have had a request to share my TradeStation Ticks indicator. This is one of my favorites that I have developed but I also need to credit Linda Raschke for helping me to turn the raw ticks into an indicator.
The NYSE ticks is the only indicator that I know of that can lead the market. I run my tick indicator on the minute time frame and often the 1 minute ticks will make their extreme a full minute or even longer before the market does.
First, for those that don’t want to read my dribble you can download the worksheet that contains my tick setup by simply going here:
http://sites.google.com/site/redliontrader/ticks
Explanation:
This is the tick chart from October 9th, 2009. The NYSE ticks are simply the number of stocks on the NYSE that are currently trading on an downtick subtracted from the number of stocks currently trading on an uptick. If I remember correctly the value is captured every second. You can display the ticks as a symbol by simply entering in $TICK as a symbol name. You will notice that the raw chart itself is very noisy. The trick to the tick is having the ability to turn the noise into a signal.
My method uses all standard TradeStation indicators. First I take the raw data and turn it dark to help fade into the background. There is information here but I don’t want it to “drown” out the primary signal we are creating. You can faintly see the tails from the underlying raw data in the eclipsed shaded areas showing potential reversals.
Once I fade the raw Ticks into the background I put a 3 period linear regression curve onto the raw data. This becomes my primary signal. I also generate a 120 minute Bollinger Band (BB) that uses the average of the (high+low+close)/3 and +/- 2 standard deviations. These bands will contain our tick signals and point-out extremes.
Also on the chart I have placed a zero line and a line at extremes +/- 1K. In general ticks that get to these area are extremes and requite some interpretation.. either jump on or get ready for a reversal scalp.. because the ticks won’t stay here for long.
Most of the time the ticks will move up and down in waves from the top BB to the bottom BB.
Interpretation:
The way I think about the Ticks is this: When the ticks have been below the 0 line and moving above (trading +) the market is beginning to be bought at the ask, all the desperate or easy sellers are gone and now buyers are having to pony up. The higher the ticks move into the positive territory the stronger the sellers are and the more interested the buyers are becoming and are beginning to chase price. Of course the opposite exists in the negative direction, sellers are dumping and buyers are picking up bargains.
This constant daily tension exists 95% of time between the upper an lower BB. When the ticks move outside the bands one can begin to interpret the markets intentions.
I have no set of trading rules to give you, you’ll need to develop those yourselves but I can give some guidelines.
One thing to look at is the 120 minute average smack between the BB’s. Above 0 lets you know that market ticks have been bullish, below 0 bearish. Their current trend (rising or falling) is noteworthy also. On this particular day in the picture I was bullish on the day based on overnight research. So I bough most of the ticks that extended below the lower BB. One rule I have found is don’t hurry. Wait for the tick to return back above or at least make a turn before entering. Often the best entry is a minute or so after the extreme ticks that have driven the signal below the BB.
I keep a very tight stop because I am either right.. this is a pivot point, or I am wrong. When I trade BGU for instance I might only use a .10 stop on a 1000 share trade that risks $100. If the stock instantly moves in my favor at .10 to .15 cents depending upon the day I move my stocks to b/e. I take a lot of stops during the day. My goal is to get at least .20 or better yet to ride a wave up gaining 1.00 or more.
I exit my trades when the ticks move to the opposite extreme. If I think there is more upside I might only take 1/2 off at that point.
If you watch the ticks overtime you will get a feel for what the market is doing. You will notice buy and sell programs that instantly move the ticks from extreme to extreme. You will see battle zones like the reversals marked on the chart above. When the signal goes to the 1K extremes and stays there, you will see panicked selling and buying. I run a clock on my desktop that is synchronized 4 times a day to an atomic clock somewhere out there in internet land. You will see a difference between the beginning of a minute versus the end of the minute (always let the tick close before deciding). The first few seconds are the time related trades that are computer setup.. Look at 1pm on this chart. See that gap up bar? Someone had a buy order set for 1pm which spiked up the tick. See the green tail up around 780? The buys hit a bunch of asks (ticked up) and triggered a bunch of sell stops which reversed the market down about .75 where buy orders or the same thieves that triggered the buys at 1pm picked them up and drove them higher (remember all those sell stops were cleaned out at 1pm) so up and over that price the market went.
Conclusion:
The Ticks are one of my favorite indicators. I use them extensively for scalping or for timing my entries into longer trades. Extreme BB readings allow me to enter at potential zero drawdown areas and allow me more quickly to get to breakeven stops. I hate drawdowns. I hate them worse than loosing a potentially good trade, stopping out too early or not getting my best potential out of a trade. My rule number 1 is “don’t loose money” and as quickly as I can set those breakeven stops the happier I am.
Play with the indicator, change the values around. You can replace the linear regression with a moving average, and reduce/increase the length or deviation size of the BB. The NYSE Ticks are a very versatile tool and have become a part of my bread and butter scalping.. thank you Linda
