Trading with Tick Index: How to Normalize Tick Index Readings
Many day traders who use Tick Index as part of their market timing tools often find that it changes its behaviour every few weeks. The most obvious issue is that the level of the extreme readings are not reliable / stable from day to day let along over months or years. This instability makes it difficult to identify recurring patterns. It also makes it difficult to produce trading models based on Tick Index that can stay profitable over long period of time without re-optimization.
The truth is that it not that difficult to normalize the Tick Index readings so that it becomes more suitable for short term pattern recognition and as an input to trading models. The key is to understand the relationship between Tick Index and its counter-parts advance issues and decline issues. I will show you how easy it is to normalize the Tick Index in this article.
- The Close Relationship Between Advance Decline Issues and Tick Index
- Normalizing the Tick Index
- Visualization of the Normalized Tick Index
- The Reason Why Tick Index Morning Readings Are Different
- The Advantages of Normalized Tick Index
- Custom Tick Indices Do Not Need Normalization
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