Using The Tick In A Short-Term Indicator by Daniel E. Downing
The tick index, the net difference of the number of stocks last traded on an uptick from those last traded on a downtick, is a well-known indicator, but it's got a problem. The raw number result is volatile, perhaps too volatile for some. What to do? Here, then, is a way to smooth out the noise to identify short-term trading opportunities.
The tick is a basic unit for the markets, watched with fascination during periods of turmoil and periods
of enthusiasm. It is quoted throughout the day on most quote services. In addition, the closing tick value
can be found on the market statistics pages of financial newspapers such as Barron's and The Wall
Street Journal. Let me present, then, the tick line momentum oscillator, which is based on the closing
value for the New York Stock Exchange (NYSE) tick indicator. The oscillator has been shown to have a
good track record of determining when the NYSE is overbought or oversold on a short-term basis. The
formula for the tick line momentum oscillator is simple and can be easily calculated without a computer,
although a spreadsheet version can be found in the sidebar, "Tick line momentum." Finally, the oscillator
is straightforward and simple to apply.