Trading with Tick Index: Recognize the Micro Trend Channels

By Lawrence

The NYSE Tick Index (aka the $Tick index) and other similar tick indices all demonstrate a similar trending properly. I call it the micro trend channels of the tick indices. These micro trends are easy to recognize visually once you understand how they behave in general.

Be prepared – this article and the upcoming ones on using Tick Indices will be getting longer because the techniques in reading Tick Index is not that simple and requires more explanation comparing to other techniques.

Tick Index Micro Trend Channel

The swing trend definition is exactly the same as the one I wrote about in Art of Chart Reading even though the NYSE Tick Index (and other tick indices) is not based on price.

Swing top and bottom can be defined using 1 minute bar with a 5 minute window.

Once a swing trend has formed you can extend the lines to visualize the channel.

A channel will stay in effect until one side of the channel is breached.

An Example Chart on Trend Day

Following is a trend day in Emini S&P. The chart is in 1-min resolution with Emini S&P in the top pane and the NYSE Tick index in the bottom pane. You can click on the chart to view them in full size.

TICK ES 1M_20130307_131433

I have highlighted the micro trend channels on the NYSE Tick Index in the chart.

Important characteristics:

1. NYSE Tick Index likes to turn and form a swing trend before the price does. In another words, the intraday swing high and low in Emini S&P are often formed with a divergence signal with the NYSE Tick Index.

2. Good turning points usually start near the hour marks.

3. Sustained intraday moves in S&P are always accompanied by a micro trend channel in Tick Index in the same direction.

4. Best intraday swing trend changes happen within a 15 to 30 minute window with clear divergence between price and the NYSE Tick Index.

5. If a strong micro trend channel in Tick Index is formed early in the day during 9:30 to 10:00, it is likely to be a trend day.

An Example Chart on Non-Trend Day

Following chart is emini S&P and NYSE Tick Index in 1-minute resolution. The day showing is a non-trend day.

TICK ES 1M_20130307_135944

Useful characteristics:

1. Big swings in NYSE Tick Index translate into only small moves in S&P

2. First micro trend channel failed to last for an hour

3. Folded trend moves in NYSE Tick Index resulting in the micro trend channels themselves diverge from the price swings (e.g. the first 2 down swings in the chart highlighted by the 2 red channels)

4. Likely to break a swing during the 30 to 45 minute mark.

5. A micro trend channel formed around 10 am and failed to sustain the channel for an hour, it is likely that the day is not a trend day.

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