Tick fades are really just another very short term scalper trade, but I’ve covered them in a separate post here because they require something other than just a price chart and indicators.
So what exactly is a ‘tick’? There is a minimum amount by which any given security can move – these minimum increments are ticks. So as buying and selling of various stocks occurs throughout an exchange’s trading hours, the price movement in each stock can be measured in ticks. At any given moment, certain stocks will be moving upwards (making up-ticks) while others are declining (making down-ticks).
What we will use in this setup is a chart that displays the number of up-ticking stocks minus the number of down-ticking stocks on the NYSE. Supposing that at this moment 800 stocks are making up-ticks and 150 stocks are making down-ticks, then our chart will show the net difference of six hundred and fifty (800 – 150 = 650). The capability for this type of chart comes as part of the standard Tradestation data feed, and the symbol is $TICK.
Ticks are a key market internal and are something that many professional off-floor traders use to gauge price action. There are various ways to trade with them, so we’ll look at a number of setups here, starting with ‘tick fades’.
Many setups get into trouble in choppy, ranging markets, but the ticks present the exact opposite problem: when a market is trending strongly extreme tick readings become the norm. Of course price will come down eventually, no matter how bullish the trend, even if just on a pullback or consolidation, but the ticks won’t tell you when this retracement is due. In a strongly trending market it is not uncommon to see four or five successive price bars register extreme tick levels. If you fade the first extreme tick reading you see then you’ll most likely be stopped out because you will be fighting an excessively strong trend. The best way to quantify ‘over-trending’ markets like this is to use the Average Directional Index (ADX) indicator, and only to fade the ticks when it shows a reading of between +30 and -30. This is the same indicator that we use in some of the other setups precisely to get us into trending markets!
Because the ticks are representative of every single stock that trades on the NYSE, they can be played across any of the US indices, but the YM (e-Mini Dow Future) and the ES (e-Mini S&P500 Future) are generally the best option.
Parameters for sells (rules are reversed for buys).
Tick fades are always best when combined with other indicators and other market internals. Here are some ideas:
Try looking for extreme tick readings around pivots, or around key reversal times like when the US Bond Market closes. Coupled with support and resistance of any kind, tick fades become a very powerful trading strategy.
Watch for a price divergence with the Arms Index – Tradestation symbol $TRIN (which naturally moves in the opposite direction to price – so divergence occurs when price is moving in the same direction as the index – confusing!).
If trading the YM, look for extreme levels from the $TIKI to confirm the $TICK. The $TIKI shows net upticks versus downticks for the Dow30 stocks only, and +/-25 are normally considered extreme levels. You could apply all of the above strategies with ticks using the NASDAQ equivalent, Tradestation symbol NQ.
In a strong uptrend (where you are very unlikely to see an extreme low tick reading), wait for the ticks to pull back to below zero as price pulls back to support, as a signal to enter long. In a downtrend the opposite can be applied.
So what exactly is a ‘tick’? There is a minimum amount by which any given security can move – these minimum increments are ticks. So as buying and selling of various stocks occurs throughout an exchange’s trading hours, the price movement in each stock can be measured in ticks. At any given moment, certain stocks will be moving upwards (making up-ticks) while others are declining (making down-ticks).
What we will use in this setup is a chart that displays the number of up-ticking stocks minus the number of down-ticking stocks on the NYSE. Supposing that at this moment 800 stocks are making up-ticks and 150 stocks are making down-ticks, then our chart will show the net difference of six hundred and fifty (800 – 150 = 650). The capability for this type of chart comes as part of the standard Tradestation data feed, and the symbol is $TICK.
Ticks are a key market internal and are something that many professional off-floor traders use to gauge price action. There are various ways to trade with them, so we’ll look at a number of setups here, starting with ‘tick fades’.
Many setups get into trouble in choppy, ranging markets, but the ticks present the exact opposite problem: when a market is trending strongly extreme tick readings become the norm. Of course price will come down eventually, no matter how bullish the trend, even if just on a pullback or consolidation, but the ticks won’t tell you when this retracement is due. In a strongly trending market it is not uncommon to see four or five successive price bars register extreme tick levels. If you fade the first extreme tick reading you see then you’ll most likely be stopped out because you will be fighting an excessively strong trend. The best way to quantify ‘over-trending’ markets like this is to use the Average Directional Index (ADX) indicator, and only to fade the ticks when it shows a reading of between +30 and -30. This is the same indicator that we use in some of the other setups precisely to get us into trending markets!
Because the ticks are representative of every single stock that trades on the NYSE, they can be played across any of the US indices, but the YM (e-Mini Dow Future) and the ES (e-Mini S&P500 Future) are generally the best option.
Parameters for sells (rules are reversed for buys).
- Only trade this setup between 15:00 and 20:30 GMT.
- When the ticks reach +1000 and the ADX remains below +30 enter short at the market.
- When the ticks reach –1000 and the ADX remains above -30 enter long at the market.
- Open orders with a 20 point stop and a 15 point target.
- If 35 minutes have passed and neither the stop nor the target has been hit, exit the position at the market.
- If two successive trades are stopped out, cease trading this setup for the rest of the day.
- If, after 15:00 GMT, all ticks have been positive, wait until the ticks have spent some time in negative territory (below zero) before fading ticks.
- If by 17:00 GMT the ticks have spent over 85 percent of their time above zero, cease trading ticks for the remainder of the day.
Tick fades are always best when combined with other indicators and other market internals. Here are some ideas:
Try looking for extreme tick readings around pivots, or around key reversal times like when the US Bond Market closes. Coupled with support and resistance of any kind, tick fades become a very powerful trading strategy.
Watch for a price divergence with the Arms Index – Tradestation symbol $TRIN (which naturally moves in the opposite direction to price – so divergence occurs when price is moving in the same direction as the index – confusing!).
If trading the YM, look for extreme levels from the $TIKI to confirm the $TICK. The $TIKI shows net upticks versus downticks for the Dow30 stocks only, and +/-25 are normally considered extreme levels. You could apply all of the above strategies with ticks using the NASDAQ equivalent, Tradestation symbol NQ.
In a strong uptrend (where you are very unlikely to see an extreme low tick reading), wait for the ticks to pull back to below zero as price pulls back to support, as a signal to enter long. In a downtrend the opposite can be applied.