Tick trading system

Posted: sirhc Date: 28.05.2017

The original Tick index was introduced by the New York Stock Exchange many years ago. Since then, it has been employed by traders to analyze market momentum.

Our focus here is its application to high-frequency day-trading. The Tick index shows the difference between the number of up-tick issues and the number of down-tick issues.

The Tick index helps to detect short-term sub-minute level extreme overbought conditions. It is also a good tool for detecting possible trend changes in intraday trading when its strength or weaknesses diverge from the futures contract being traded.

For many swing traders looking for significant moves in the index futures, such information is probably not useful at all. On the other hand, if you are a day-trader and your interest is capturing a few ticks per trade, then the ability to foretell a possible short-term top or bottom is extremely valuable. Focus on the arrows marking the series of extreme low readings in the Tick index.

Notice that in a downtrend within the day, the Tick index keeps generating extreme lows the red arrows at around the same level. Then, as the downtrend is about to finish, the Tick index stops producing such extreme lows.

At the double bottom of the index futures contract, you get a divergence reading from the Tick index with higher lows green arrows.

When the Tick index fails to work, however, it gets much more difficult to interpret. For example, in our chart, when the index futures start to trade higher in the afternoon, the Tick index starts to swing to extremes in both directions, making it hard to tell if the up trend will continue. There is no objective way to tell if an extreme low is indeed an extreme low. Back in the s, the usual extreme low readings were In the s, they expanded to In the current trading environment, extreme low readings are more along the lines of This is due to the increase in listings at the exchanges.

As there are more stocks traded at the stock exchanges, the range of the Tick index will keep expanding. For some issues that are rarely traded during the day, their last trade could have happened many minutes ago, but those trades still affect the current value of the Tick index.

The standard Tick index includes too many symbols that are likely not part of the specific index futures being traded. This creates some incompatibility risks between the Tick index and the actual futures contract. Since the Tick index was created, real-time stock market activities have grown 20 fold.

Collecting the last tick value across all the stocks may not be enough to provide stable reading all the time. To improve on the Tick index, we can design our own breadth data, called Tick 16 click to download , that overcomes many of these problems. It has two distinct features.

tick Trading Software AG

First, we restrict data collection to the relevant index components, making the breadth data directly relevant to our index future counterpart. This method will smooth out the breadth data. Distribution plots of both the Tick index and the Tick 16 are shown for comparison.

For the Tick index, the data are skewed toward the negative side by In short, the Tick index cannot normalize the data as we would expect.

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With the Tick 16, however, the distribution is clearly well balanced and its distribution is much closer to normal distribution. Keep in mind, though, that there is always a trade off when it comes to working with designed breadth data. With the Tick 16, you can expect that in the long run, the data will be stable within the prescribed range and trading models built around the data will not throw off the map over time.

However, the superior data quality requires regular maintenance of the underlying data collection process that can be time consuming. To test the effectiveness of this new breadth data for intraday trading, we can use it to develop a basic trading system. The system is based on second bars, using data from 9: Tick 16 has a reading at or above Within a minute, Tick 16 declines below and then crosses above Tick 16 has a reading at or below Within a minute, Tick 16 rises above and then crosses below This system is not for everyone.

It is a short-term, day-trading application and your risk parameters and execution abilities need to accommodate this style. The system is well balanced with a similar number of long and short trades.

tick trading system

Drawdown is controlled by the stop loss. Overall, it is a good foundation for further development. In live trading, it can be difficult to follow this system on a discretionary basis.

Without an automated execution solution, the trader would have to be incredibly agile to execute the orders without error. That said, the Tick index is a good trading tool and will continue to be one for many years. However, due to its changing nature over time, it is hard to develop stable trading models based on its data. With the Tick 16 concept, we can solve the weaknesses of the Tick index and make it possible and rewarding to use this breadth data in mechanical trading systems.

Lawrence Chan is a trader and principal designer of NeoTicker.

He can be contacted at Lawrence tickquest. Free Newsletter Modern Trader Follow. We asked traders what FBI Director Comey's testimony means for stocks and other markets.

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tick trading system

Day-trading with the Tick index FROM ISSUE. TICK INDEX PROBLEMS When the Tick index fails to work, however, it gets much more difficult to interpret.

The weaknesses in the Tick index can be summarized as follows: BUILDING OUR OWN To improve on the Tick index, we can design our own breadth data, called Tick 16 click to download , that overcomes many of these problems.

FIELD TESTING To test the effectiveness of this new breadth data for intraday trading, we can use it to develop a basic trading system. The profit target is 2. Always in the E-mini. Collecting premium, with help from the Fed. Related Articles Daily Price Action: Previous Always in the E-mini. Next Collecting premium, with help from the Fed.

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