Hey fast, thanks for introducing me to the tick-charts. Hopefully I can open your mind to the power of the $TICK. I have to shout out to RileyR569, MC and also the blog posts by Brett Steenbarger for helping me understand/appreciate the $TICK or market internals in general.
The $TICK/Q tells you whether Nasdaq stocks as a whole tend to be traded at a higher or a lower price in the allocated time frame. For example if MSFT was trading at 33.02 and then in the next interval (3min for my charts) it is trading at 33.01, then it counts as one downtick for the TICK/Q.
$ADVN (or $DECN) on the other hand, gives you the amount of stocks that are up on the day. So if we continue to use MSFT as an example. If MSFT opened at 32.93, even if the price moved down from 33.02 -> 33.01, MSFT would still register as a Advancing issue because MSFT's current price (33.01) would still be higher than its opening price (32.92).
Now let me break down how I use $TICK/Q:
Note: I use the $TICK/Q and have found these measurements to be the best for the /NQ contract. You will have to use different price levels if you are looking at the Russels, Dow Jones or S&P e-mini contracts
It's a lot to take in a first but it is pretty simple to read after a while.
- On the chart, I have the thick white line for the zero-line. When the $TICK/Q hovers around here, the sentiment is neutral. From 9:45-10:45 notice that the $TICK/Q hovered around the zero line. If you look at the corresponding price action for the index on the subgraph, you can see that the NDX simply consolidated and chopped sideways for that whole hour.
- The second lines I have on the chart are for the +200 uptick and -200 downtick level. Personally, I find the +/-200 level to be consolidation territory for the indexes or an area that telegraphs move with little strength behind them. However, you can still make observations from this area. For example, from the open until the 9:45 session, look how easily the candlesticks broke below the -200 downtick area, yet how hard it was for a +200 uptick to be registered when the market attempted to bounce off support (see price action on subgraph). This is a tell that perhaps there is bearish momentum bubbling underneath the tame price action.
- The third (dotted) line shows some real sentiment: +400 and -400. This is when the market starts picking up steam. Notice how the 11am selling encroaches the -400 downtick level and stays in the area for around 8 three-min bars.
- The fourth line is when the trend is nearing extremes and a reversal is potentially around the corner at +/-600 on the $TICK/Q . Note how the -600 acts as almost a resistance level for the $TICK/Q. Once it gets touched, the $TICK/Q shoots back higher. Creates good potential entry levels for contrarian traders.
One thing to note is that the characteristics of the lines actually alternate depending on the market's trend. For example, the -600 level acted as resistance on this day, but on a really bullish day, the -200 downtick can have the exact same role. It depends on the trend for the day and in the recent past in general.
- I spoke about this earlier, but I want to go into a little more depth with the visual pic I have above. One type was mentioned earlier, where the $TICK/Q reading reaches extreme levels and reverses promptly
- Another type of reversal pertains to the candlesticks more than the actual tick reading. Early in the morning, note the blow off tops at 9:15 and 9:54. The long upper shadow shows that the bulls were hitting the buy button and $TICK/Q ran higher but then the bears jumped in after the bulls were exhausted and pushed the $TICK/Q back down. As I said early, this is a higher probability sign of a pending reversal. If you look at the price of the NDX at 9:15 and 9:54 on the NDX subgraph, you can clearly see that these were two separate highs before the ensuing sell-off.
More when I learn it.