How Much Do You Know About the TICK?
When you are done reading this article, you will be able to answer questions like these:
- How is the TICK computed?
- What is the maximum TICK reading?
- If the TICK reads +176, how many stocks are rising? How many are falling?
- Do some TICK readings contain more information than others, or are they all equal?
- If the TICK reads around +300 consistently, what can you say about what the market looks like?
- If the TICK is rising, are more stocks upticking?
- Why is a large TICK reading hard to sustain in a healthy market?
So many articles just tell you that +1000/-1000 are overbought/oversold levels, and move on to other topics. That’s a shame, because even something as simple as the TICK has a rich inner life, that you can get to know here.
How to Compute the TICK
First, let’s cover some background. There are three types of tick:
- A stock is on an uptick when the last transaction is at a higher price than the previous transaction.
- A downtick is when the last transaction is at a lower price than the previous transaction.
- When the last transaction is at the same price as the previous one, this is a zero tick.
| Time | Last | Tick |
|---|---|---|
| 12:00 | 100 @ 41.00 | – |
| 12:01 | 100 @ 41.01 | up |
| 12:02 | 100 @ 41.00 | down |
| 12:03 | 100 @ 41.00 | zero |
| 12:03 | 100 @ 41.05 | up |
The TICK Indicator is just the difference between the number of stocks currently upticking and the number of stocks currently downticking. Zero-ticking stocks don’t have any effect on the TICK indicator’s value, as they are not in the calculation.
So, let’s say we have an index of 3 stocks, and we want to compute the TICK for it. If two are upticking, and one is downticking, the TICK for our index is 2 – 1 = 1. If one is upticking, and the other two have zero-ticks, our TICK is also 1. Hmmm… two different scenarios… one TICK value. That’s interesting! We’ll get back to that, later.
| Two Markets, One TICK! | |
|---|---|
| Tick Counts | TICK |
| 2 up, 1 dn | 1 |
| 1 up, 2 zero | 1 |
By the way, the meaning of uptick, downtick, and zero tick can be confusing, because the terms are used differently in different contexts. The infamous uptick rule for shorting stocks, for example, uses different rules. You can short a stock when the last non-zero tick was an uptick. This is why you see people calling zero-ticks following an uptick “zero-plus ticks”, and why many platforms and feeds treat zero-plus ticks as upticks. To make matters more difficult, Nasdaq stocks use changes in the bid price to determine upticks for short selling purposes (rather than the last transaction price). Confusing, huh?
Maximum TICK Value
From the above, you should be able to see that the maximum value for a positive TICK is equal to the number of underlying stocks. This is the case where every stock is upticking (you can imagine, this is quite a rare TICK reading). So, in a 3 stock index, the maximum TICK reading is 3. Obviously, if all 3 stocks are downticking, you would get the minimum TICK reading of -3.
Last time I looked, my data feed has 3432 NYSE stocks, and 3177 Nasdaq stocks. So the maximum/minumum TICK readings for the NYSE and Nasdaq TICKs are 3432/-3432 and 3177/-3177, respectively.
For a Given TICK, What Can You Say About the Stocks?
To make this easy, let’s start small. Let’s say we have an index of 6 stocks. The TICK is 2. What do we know about our stock index, based on that information?
Can we tell how many stocks are rising? No, because recall that different scenarios can lead to the same TICK reading. But, we can put bounds on it. Let’s list the possible scenarios for a TICK of 2 on a 6-stock index:
| Ways to Get +2 TICK on 6 Stocks | |
|---|---|
| Scenario 1 | 2 upticks, 4 zero-ticks |
| Scenario 2 | 3 upticks, 1 downtick, 2 zero-ticks |
| Scenario 3 | 4 upticks, 2 downticks |
If you repeat this experiment for more values, you can see that the number of upticking stocks is at least the number given by a positive TICK value (and likewise, a negative TICK tells you the minimum number of downticking stocks).
It turns out we can also put an upper bound on the number of upticking stocks, when we have a positive TICK (and downticking stocks for negative TICKs). The formula is TICK + (Total – TICK)/2. In the above example, that makes the upper bound 2 + (6-2)/2 = at most 4 upticking stocks.
To give a second example: if we have a total of 216 stocks, and the TICK is +25, then we know that we have at least 25 upticking stocks, and at most 25 + (216-25)/2 = 120.5 = 120 upticking stocks. Round down any fractional answers you get. Make sense?
Incidentally, the difference between the number of upticking stocks and the TICK reading tells you how many downticking stocks there are. For instance, if the TICK is 4, and there are 5 upticking stocks, then there must be 5 – 4 = 1 downticking stock. Any remaining stocks must be zero ticking.
So, to close this section with a real-world example: when the NYSE hits that “magic” overbought TICK of 1000, you know that somewhere between 1000 and 2212 stocks are upticking, and somewhere between 0 and 1212 stocks are downticking. Would an index of all NYSE Stocks be rising? It’s certainly likely, but in fact the index could be falling. This is because classifying the ticks as up or down throws out the information about how large the ticks were. If the average downtick were 3.8 cents, while the average uptick sat at a mere 1.2 cents, then the index could be falling despite a very positive TICK. You just don’t know, since the TICK throws that information out.
A Bit of Trivia
I’m not sure how this would be useful for trading, but… if you have an even number of stocks, and an odd TICK reading (or vice-versa), there must be at least 1 zero-ticking stock. If you have an even number of stocks, and no zero-ticks, then all combinations lead to an even TICK reading.
| 6 Stocks | TICK |
|---|---|
| 6 up, 0 dn | 6 |
| 5 up, 1 dn | 4 |
| 4 up, 2 dn | 2 |
| 3 up, 3 dn | 0 |
| 2 up, 4 dn | -2 |
| 1 up, 5 dn | -4 |
| 0 up, 6 dn | -6 |
… and the same is true for odd numbers of stocks and odd TICK readings (0 counts as an even number for this discussion). So, when your TICK and your total number of stocks are mismatched odd and even, then there must be at least 1 zero-ticking stock, to balance it out. This also means that if your TICK reads at its second-highest reading, there are still no downticking stocks (because the only non-upticking stock must be zero-ticking), and the opposite for the second-lowest reading.
Do Some TICK Readings Carry More Information Than Others?
If you’ve followed the above discussion, you should at least suspect that the answer is yes. To be exact about it, larger TICK readings (whether positive or negative) tell you more about the markets than smaller ones.
Why is this so? Let’s look at the extremes. When the TICK reads 0 in a market of 3000 stocks, recall from the earlier equations that there are between 0 and 1500 upticking stocks. That means there are there are 1500 possible up/dn/zero tick counts that could lead to that 0 TICK reading–and that’s just possibilities for the counts! Once you try to map those counts to individual stocks, you are looking at a mind-blowing number of market scenarios that all map to the same 0 TICK. Which would be fine, except you’d ideally like to know which one you are dealing with!
Compare this to the other extreme. In a market of 3000 stocks, there’s only one scenario that gives us a TICK reading of 3000: it’s when every stock is upticking. At the maximum (and the minimum) TICK value, you know the disposition of every stock in the market. That’s a lot of information! That’s clarity, and it turns out that you lose a lot of clarity every step you take away from the maximum value. Just one notch down, at a TICK reading of 2999, there are already 3000 possible market scenarios (the case where stock 1 is zero-ticking, the case where stock 2 is zero-ticking, and so on). And the number of possibilites explodes from there as the TICK reading falls.
| TICK for 3000 stocks | |
|---|---|
| TICK Reading | Meaning |
| 0 | Anywhere from 0 to 1500 upticking stocks, distributed in one of billions of billions of possible ways |
| 3000 | Exactly 3000 upticking stocks; only 1 possible scenario |
So, larger TICK values are much less ambiguous about what the market is doing than smaller ones.
Looking at the TICK Over Time
This section should be called “how little the TICK really tells you in isolation.”
If a TICK value holds steady, let’s say at +300, over a time frame, what does that mean? The only thing it means for certain is that at every data point, there were 300 more stocks upticking than there were downticking. So, were 300 stocks moving straight up, while the other stocks just sat still? Maybe. Was a different set of 300 stocks moving up at every data point? Maybe. You don’t know by the TICK alone, but you do know that there is a healthy bias to the overall market. And, if you make certain assumptions (like the average uptick and average downtick are usually the same size), then you can assume an index of the underlying stocks will be rising, for instance.
Again, a steady 0 TICK reading gives the least information in this respect. Maybe 1/2 the market is raging straight up, while the other half is falling straight down. Result: 0 TICK. Or maybe it’s 1/4 and 1/4, with the other 1/2 of the stocks flat. Result: 0 TICK. Or, maybe all of the stocks are completely flat. Result: 0 TICK. You just don’t know by the TICK alone.
For this reason, I think it’s prudent to avoid making decisions on TICKs with low values… they are just too noisy. They could mean anything! When the TICK shows a bias of, say, 20% of the total underlying stocks, though, that’s another story. For TICKS like the NYSE and Nasdaq, which cover about 3000 stocks, that means numbers greater than 600 or so are the ones worth watching. I start paying attention around 500 just to be safe :-) For a reading like the TIKI, which only covers the Dow 30 stocks, I’ve seen people suggest that 26 or greater are the relevant values.
Rising/Falling TICKs
If the TICK is rising, then the market is getting more biased towards upticking stocks. But, that’s really all you know. You don’t know which stocks are rising, or how much they are rising, or even if the stocks that were rising a second ago are still rising. You don’t know if more volume is flowing into the upticks, or the downticks. Think fast: if the TICK is rising, are there more upticks now than there were a second ago? Actually, the TICK can’t even tell you that!
| Rising TICK, Falling Uptick Count | ||
|---|---|---|
| Time | Market | TICK |
| 12:00 | 5 up , 5 dn | 0 |
| 12:01 | 3 up, 1 dn, 6 zero | 2 |
But, you can see from the table above, if the TICK rises, either more stocks are ticking up, or less stocks are ticking down, or both. Overall, that’s still a positive move. In all cases, it clarifies the situation a lot to look at the price and volume on several major market sectors. That will tell you the breadth and strength of the moves that the TICK is registering.
The Utility of Large TICK Readings
We already know that large tick readings tell us more about a market than small ones. Now we’ll see some justification for those arbitrary-sounding rules like “+1000 TICK is an overbought market.”
First, take a second to remind yourself how rare a true up or downtick really is, compared to all the prints on a stock. Look at Time and Sales for any stock, and you’ll see that usually several ticks go by at the same price before the price moves. To uptick twice, you have to eat through one or more ask levels, and to downtick twice you have to eat through bid levels. So, to get a series of upticks with very few zero or downticks in a stock, it has to be really moving strongly.
Take that view, and expand it to the whole market. When the TICK reads +1000 in a market with about 3000 stocks, that means between 1/3 and 2/3 of all stocks are upticking (and at most 1/3 are downticking). To sustain that, TICK after TICK, you really only have two possibilities:
- a little over 1/3 of the stocks are positively surging up (concentrated upticks scenario). Or…
- the majority of stocks are taking part in a broad-based rally (distributed upticks scenario)
In that second case (which is the more likely one on a sustained large TICK reading), there aren’t many ways to distribute all those upticks that don’t give the whole market a positive bias. Remember, at minimum, 1/3 of all stocks are ticking up for the entire time the TICK reads +1000. That’s just one more reason large readings are more meaningful.
Clearly, those large TICK values would be hard for a normal market to sustain, which is what makes those levels so useful for intraday trading. When you know there is a high probability that a widely-watched market-wide indicator is about to turn, surely there is some money to be made, right? :-)
Ways People Use the TICK
So, how can you use them? I think there are two ways: during the large reading, and after it. We’ll talk about positive values here… invert the logic for negative TICKs.
During a large TICK reading, I think you can use it to help manage your positions in individual stocks. Say you are short a stock, and the TICK pops up. If you think just a few stocks are raging (maybe there’s a sector popping up on news), then maybe you just keep a careful eye on your own sector index, in case it starts turning. On the other hand, if you think a broader rally is starting, this would be a good time to cover your short position at the first sign of trouble. Remember, all the traders out there that gauge the markets via the TICK will cause a broad-based upswing if the TICK stays high long-enough.
After a large TICK reading has started falling back to earth, an index that rose with the TICK may start to give up some of its gains. This is why people fade large TICKs against a suitable index. I view this as a riskier play unless the move in the index was pronounced (in which case it was likely to reverse at some point, regardless of the TICK).
In fact, I think most forms of TICK-divergence plays you can find people using are a better class of ideas. For instance, one idea is to fade big up moves in an index when the TICK is low and falling. Use what you’ve learned above to try to “see” what’s happening underneath that index: A low TICK would indicate that relatively few underlying stocks must be making out-sized moves. Otherwise, the index wouldn’t be able to rise so fast. Those out-sized moves are likely to reverse, and take the index back down with it.
There are a number of TICK-divergence strategies out there on the net, if you search for them, but you could just as easily come up with them yourself. Divergence plays all basically assume that when the price and the TICK don’t agree, eventually they will snap back and agree again. Hopefully it’s the price that does most of the snapping, because you can’t trade the TICK, as far as I know!
Key Ideas About the TICK
Wow, that was a lot of information. If you are one of the three readers that made it this far, congratulate yourself! Here are the key points you should take away from all that detail.
- On NYSE and Nasdaq, don’t bother with readings less than +/-500 or so… they could mean just about anything
- A sustained positive TICK doesn’t necessarily mean that the index is rising, or even that any one stock is rising… you need to confirm it with other data
- Extreme TICK readings are hard to sustain in a normal market
- The TICK is a periodic snapshot of up and down ticks, and therefore looks very messy on charts. For this reason, many people just chart a moving average of the tick. Others chart it as a line chart rather than a candlestick chart. Others just look at the number on a quote screen, and don’t chart it at all.
- Extreme TICK values can help alert you to times when you might want to scale out of a position
- TICK divergence from price can be a powerful reversal indicator, if confirmed by other market data
Summary
I set out to write the most comprehensive TICK article available on the web. Every page I found via search paid very little attention to the inner details of how the TICK works. Hopefully you found some or all of the information here useful. I think that the only way to really use indicators well, is to understand exactly what they can and can’t tell you, and why. After reading this article, you should be able to better apply the TICK to your trading routine, and better understand the ideas behind TICK-based trading strategies you may find on the web.
The information I could find on the TICK is so skimpy that I had to do some experiments to figure out some aspects of the way the TICK is collected. If you have any corrections or clarifications (especially with references), I’d love to hear them!
If you enjoyed this post be sure to check out my other posts on the TICK, including the popular interpretation indicator.
Do you or anyone else know of a good free source for tick data? Thanks
Since it’s such a short-term indicator, you’d need real-time TICK info to make good use of it. Real-time market data doesn’t seem to ever be free. Sorry!
Most brokers’ trading platforms have it (symbols will vary), as will Esignal, etc.
I checked with TD Ameritrade. You can get a quote with $TICK. However, you cannot get it on their real-time trading platform (”control panel”) that’s whay I was not able to get it. Thanks anyway!
Weird that you can’t see it on their platform… Well, if it’s a real-time quote, that’s really all you need. I don’t chart it, myself… I just leave the quote up.
TD Ameritrade does not carry $TICK or $TRIN on the streamer platform according to their customer service. I used the free delayed streaming quotes from scottrade to get $TICK and $TRIN before I opened an IB account.
Great article, Richard. Very informative. I’m going reevaluate my $TICK usage. Thanks for writing it.
Great post! And I have to agree with you that most articles on TICK aren’t as detailed.
As for free real time TICK, can try quotetracker, but then again, need the live feed from your broker e.g. IB, OX
@simply: Thanks!
Great article! I think that knowing the science behind indicators and what moves markets allows you to trade better if you use it intelligently. Thanks for telling us about TICK data and how to intelligently use it!
[...] So, based on my TICK article, one would guess that the majority of randomly-generated markets would have low TICK values (since there are so many more ways to get a low TICK than a high TICK). [...]
[...] Move The Markets explains the TICK indicator. [...]
This is seriously one of the top 5 explanatory technical articles I’ve read on the web. Keep up the fantastic work.
Thanks, jimmy5! … I wish I had more time for writing long articles like this. I plan to do a whole series of deep indicator analysis, so stay tuned!
Does anybody here know a good real time quote service that provides tick,trin,A-D,up/down volume indicators?TD doesnt offer this stuff i beleive.Thanks.
[...] Better Know the TICK Indicator — Move the Markets everything you ever wanted to know about TICK and then some [...]
Thanks for this article, I went from zero Tick knowledge a very good understanding in 10 minutes.
:)
Well written and very informative, thanks for your time and effort.
I’m glad you liked it, Randy!
[...] at Move the Markets has a lot of good articles about the TICK and its use, so read them for more info on how to use the TICK in your [...]
Thank you for your article, I look forward to reading more of your work.
Richard , Thanks for a very comprehensive review of the $TICK. Your article has been very helpful in making sense of this great little tool that at first glance seems to have so little information to give.
I appreciate it.
Thx Richard, good job.
I’m trying to understand why futures scalpers buy say on a low tick (-800). You would think that the – tick means stocks are still going down. I would think they would buy after the -800 low tick, when the tick crosses +, back above 0.
JohnB, you will find that the $TICK is only updated every few seconds, and by the time you get a strong positive reading again, the move is underway. For a scalper, there is no time to waste, because the only way you get a positive $TICK again is when some buying _already_ happened. For the scalper, that’s too late. For other traders, waiting for a reading back in the noise (greater than negative 400 or so) is prudent.
Thx
[...] treatment of what the Tick is and the significance thereof. Richard at Move the Markets has a very good Tick article if you want this background info. Dr. Brett Steenbarger talks a lot about how he uses cumulative [...]
many thanks Richard great article i have been using tick divergence against price support and resistance and has been a great combo.
Many thanks for the time to write this article.
Richard, excellent article.
I really enjoyed all this info about the TICK. I knew lots of people use it but wasn’t sure how to interpret. Your article makes thinks a lot clearer. I’ll try to see if I can utilize it into my trading style.
You say that the TICK value gets updated every few seconds, so would it be fine to look at the TICK on smaller time frame charts such as 133/144/233 tick or 250/500 volume ?
Great stuff, please keep it up. Thanks.
I assume you mean smaller time frame charts of ES or YM or SPY or whatever you trade. In that case, sure. If you mean the TICK chart itself, then you might as well use a time based chart since it is updated in a time-based manner. But you can go as fast as you like.
[...] article on ticks, worth reading It reveals some of the inner workings of this non-price data Better Know the TICK Indicator|Move the Markets Other links & indicator by Richard on Ticks Move the Markets|Tag Archive|tick Enjoy Minoo js [...]
Thanks Richard, great information and analysis.
Michael Cook has done a lot of research on the tick as well and has developed what he calls the cumulative tick index.
I’m just glad that after reading all that, your 4 main points are exactly my observations. Here I was thinking I was going to have to retool my view. *phew*
Trading is confusing enough! Thanks, it was really a joy to read. *pulling out asprin*.. :)