Trading with Tick Index: Tick1K and its Divergence Signals

By Lawrence

Someone asked what I mean by “custom tick divergence” in my real-time commentaries. Here are 5 charts (one day each) for the past week with Emini S&P, $Tick index and my DNO_Tick1K index. (You can expand them to full size for better viewing.)

First of all if you do not know what Tick1K is then continue to read this paragraph. If you do know what it is then you can skip to the next one. Tick1K is a specialized breadth calculation on a basket of symbols that sums up the last 1000 ticks of each and every one of the symbols in the basket. It is designed to overcome various weaknesses in the standard $tick index. For more information about $tick index and what custom tick indices are refer to my S&P Tick16 article.

Now, an explanation of what DNO is. It is simply my short form for the basket of symbols combining Dow 30, NDX 100, and OEX 100. Thus DNO_Tick1K is the Tick1K index based on this special basket of symbols.

$TICK vs DNO_TICK1K

On all 5 charts, it is clear that $tick is noisy and the quality as a momentum indicator has degraded significantly since its days as the king of daytrading indicators 10 to 15 years ago.

What I look for from DNO_Tick1K are the same as any other momentum indicators,

  • Retest of extreme level
  • Swing divergence from price within 10 to 15 minutes window
  • Kiss of zero line bounce

A combination of the last 2 at important price levels is a very powerful formation signaling a change in trend.

Using DNO_Tick1K has another advantage. There is this 10 to 15 seconds lead that you cannot get from any other indicators. $Tick is supposed to have a similar but less profound leading quality (2 to 5 seconds). Unluckily, the exchanges are only broadcasting the update every 15 to 30 seconds, so the lead is not usable anyway.

Charts from Feb 14 to Feb 18

dno_tick1k_20110221_102908

dno_tick1k_20110221_102928

dno_tick1k_20110221_102956

dno_tick1k_20110221_103012

dno_tick1k_20110221_103032    

Comments
  • spooz2 February 21, 2011 at 2:39 pm

    In real-time ES commentaries, it would be very helpful if you pos your chart of DNO_Tick1K with your comments as you spot significant readings.

  • Lawrence Chan February 21, 2011 at 5:55 pm

    You probably notice the upload picture buttons are removed from the comment entry area. The plugin we were using caused problems with real-time update.

    Once we move to a new server, I hope that we can reintroduce the feature.

    p.s. I do not post from my trading computer directly – I actually use a separate computer for browsing, email, etc.

  • miniflowtrader July 28, 2011 at 12:21 am

    Would like to see some annotated versions if possible. Displaying the swing point where the tick div becomes confirmed.

  • Lawrence Chan July 28, 2011 at 8:12 am

    Sure. Once my schedule stablizes a bit.

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