$TICK – Tock – Testing the NYSE TICK Index

$TICK – Tock – Testing the NYSE TICK Index

By Erik Skyba, CMT
Senior Market Technician, TradeStation Labs

Summary

If you search for the words “NYSE Tick Index” on the Internet, you will find links to many articles touting the success of using the Index as a trading signal. These articles claim that there are various levels and rules that can be used to generate profitable trades. For example, one theory is that the -1,000 and +1,000 levels are important action points on the Index. In this paper, we will discuss the NYSE Tick Index, rules that are commonly associated with trading signals, and, most importantly, whether or not these rules can produce successful trading results. Whether you’re a discretionary trader or a systematic trader, you’ll find that the NYSE Tick Index may provide insights that you should be aware of when trading.

Introduction

The NYSE Tick Index, ticker symbol $TICK in the TradeStation platform, is a short-term barometer of internal market strength. We typically call these types of indexes “market breadth indicators”. This particular Index is calculated by subtracting the number of stocks on the NYSE that are currently on downticks from the number of stocks on the NYSE that are currently on upticks. For example, if the number of stocks on an uptick is 1,000 and the number of stocks on a downtick is 500, the NYSE Tick Index will be +500. This value constantly changes and values above zero are bullish while values below zero are bearish. However, the common convention among traders is to use $TICK to signal trades when the Index is at extreme readings, as a contrary indicator. In other words, if the Index has a reading below, say, -600 (market is moving lower), a long trade should be taken; if the Index has a reading above, say, 600 (market is moving higher), a short trade should be taken. Figure 1.0 is a list of all the available tick indexes in the TradeStation platform. We chose to conduct our analysis on the NYSE Tick Index ($TICK) because it’s the most popular of these indexes and has the most historical data for testing purposes.

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