The TICK measures the net number of stocks that are upticking versus the net number of stocks that are downticking. If a stock is trading with an uptick, someone is paying for the offer to buy it. If a stock is trading with a downtick, someone is selling the stock on the bid.
The TICK reading is available for the NYSE composite index, which represents all of the stocks traded on the New York Stock Exchange. The TICK is also available for other sectors, including the Dow Jones Industrial Average, the NASDAQ 100, and the S&P 500. The NYSE TICK reading is one of the most widely used. All of them are valuable measures.
For example, if the TICK reading on the NYSE is +500, it means that 500 more stocks are being bought than are being sold. This number is meaningless as an absolute value, but it is useful as a relative number when compared to the net number of upticks or downticks preceding the measurement.
The TICK identifies overbought and oversold conditions when it diverges from broader market measures. When prices have reached their highs or lows and are about to reverse, the TICK is a leading indicator. You can plot the TICK, which will point toward that reversal, on a chart using a short-term moving average, such as the 8-period, to identify changes in market sentiment and the trend.
If the broader market has been selling off all morning with the TICK in negative territory, a jump into positive territory indicates that a short-term rally is under way. A change in sentiment displayed by a rally in the TICK can be plotted on a chart using an 8-period moving average. A move above the 8-period moving average indicates positive sentiment; a move below the average indicates negative sentiment.
Excessive enthusiasm or gloom is associated with market tops and bottoms. When the NYSE TICK reaches an extreme reading of +1,000 or -1,000, it is a sign that a rally or sell-off is reaching a capitulation point, and an overbought or oversold condition may be in place. An extreme reading indicates that frantic bulls or bears have thrown in the towel and have either sold their longs at the bottom or covered their shorts at the top in an emotional frenzy. It is usually when the pain is the greatest that most people tend to give up. After these people give up, things start to turn around because all the weak hands are washed up.
The Trader's Index (TRIN) is a leading indicator that is effective in measuring overbought and oversold conditions that are the result of emotional extremes. The TRIN measures the ratio of advancing stocks to declining stocks and compares it to the ratio of advancing volume to declining volume. The TRIN changes dynamically and can be tracked with the symbol TRIN on most market minders. It can also be plotted on an inverse overbought or oversold scale, with upper and lower reference lines, included with most charting packages.
The formula for the Trader's Index is:
The objective of the TRIN is to produce a dynamic snapshot of volume and price action to assess the market's health. The TRIN has a reading of 1 when the advancers move proportionately with advancing volume and when the decliners move proportionately with declining volume. For example, if 10 issues advance on 100,000 shares, and 5 issues decline on 50,000 shares, then the TRIN has a reading of 1. If 5 issues advance on 50,000 shares and 10 issues decline on 100,000 shares, the TRIN still has a reading of 1.
A TRIN reading below 1 is considered bullish, and a TRIN reading above 1 is considered bearish. As the TRIN widens from the neutral 1 reading, it indicates that the bulls or bears are gaining force. The TRIN declines beneath 1 when the volume of the advancers is greater in proportion to the number of stocks that are advancing. Bulls tend to become exceedingly optimistic at market highs, and the increase in volume without an increase in prices reflects this bullish sentiment. For the day trader it is important to remember that a dropping TRIN is considered bullish.
For example, if advancers are outpacing decliners by 3 to 2, and if advancing volume is outpacing declining volume by 3 to 1—a higher proportion—then the TRIN will have a bullish reading of .50. In this case, the price action is not keeping pace with the strong vol ume. A low TRIN can produce an overbought signal on an inverted scale. It produces a sell signal when it crosses below its upper reference line.
The TRIN rises above 1 when the declining volume is greater in proportion to the decliners. Excessive pessimism is reflected at market lows, when the bears want out and are selling stock without a correlated number of issues declining. If decliners are beating advancers by 3 to 2 and declining volume is leading advancing volume by 3 to 1, the TRIN has a bearish reading of 2. A high TRIN can produce an oversold signal on an inverted scale. It produces a buy signal when it crosses above its lower reference line. The right way to use the TRIN for bullish signals is:
1. When the TRIN crosses above its lower oversold reference line, it indicates that the bears have lost power, and a bullish reversal could be at hand.
2. When prices make a new low but the TRIN makes a higher low, it represents bullish price divergence.
3. A falling TRIN is considered bullish.
The right way to use the TRIN for bearish signals is:
1. When the TRIN crosses below its upper overbought reference line, it means that the bulls have lost power, and a bearish reversal could be at hand.
2. When prices make a new high but the TRIN makes a lower high, it represents bearish price divergence.
3. A rising TRIN is considered bearish.
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