Trading with Tick Index: Know Its Personality

By Lawrence

It is time to take a look at the basic statistical behaviour of the Tick Index.

Following is a chart of NYSE Tick Index and its 3 distribution graphs. Red one is the distribution of the daily low. Yellow is the distribution of the daily close. Green is the distribution of the daily high.

TICK ES 390M_20130209_131014

Visually it is pretty clear the 3 distributions are completely different animals. It is also the primarily reason why it is hard to interpret Tick Index visually if you are not aware of its property. You have to read the positive extremes with a different set of rules from the negative extremes.

Positive Extremes

Notice the positive extremes (i.e. Tick Index daily high prints) are concentrated within a tight range. In general Tick Index positive extremes behave very similar to price spike highs. Intraday, they spike and retrace quickly from these extremes. making them easily identified.

Local positive extremes are often associated with Emini S&P retracing at least 1 point and majority of the time 1.5 to 2 points.

If you have access to a faster version of the Tick Index, like a custom version you construct yourself locally on your computer, it is possible to get leading signals that is 10 to 15 seconds ahead of the turn in Emini S&P. Hence it is probably the best scalping tool you would ever get.

With the regular Tick Index, the leading effect diminished to a few seconds only, so you have to pay very close attention to the tick by tick update of the index to catch the turn.

Negative Extremes

Next we have to look at the negative extremes (i.e. Tick Index daily low prints). First, they are NOT concentrated within a tight range like the positive extremes. These negative extremes do not behave like price flush lows. Intraday, they can stay at the negative extremes 2 to 3 times longer than the duration it spends in positive extremes. Negative extremes are best used as down trend triggers or confirmations.

In another words, It is okay to scalp a spike low if the negative extreme printed is not dropping below -1000 (approx.). You would know that if a certain negative extreme is holding by comparing that to the ones made earlier in the day as Tick Index has strong memory effect.

When Tick Index started to fall deep below -1000, however, it may just stay there for a bit longer, and that is enough to break the price level in Emini S&P by 5 points or more in minutes. The delicate change in the role of the Tick Index in negative extremes require the trader to pay a lot of attention to the context of the situation.

End Notes

I just summarized some of the intraday behaviours above instead of throwing out tables and more tables of the statistics I’ve collected. They are not necessary for delivering the concepts. Those who are interested in gathering the details can easily reproduce the statistics yourself to confirm what I wrote.

For avid chart readers, just open your historical charts with the Tick Index loaded alongside Emini S&P. By flipping through a year or two of your intraday charts, you will be able to internalize the principles I stated above.

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