Most trading indicators don’t work. They lag price action and won’t make you money. And yet traders are always spending countless hours tweaking them and trying to make them work. I’m going to save you a lot of time and money by introducing you to the one indicator that does work. And the best part is that it’s available for free in most charting platforms.
I trade for a living and have been using this indicator in my trading for the last 6 years. It does things that no other indicator can. It can tell you when price is exhausted. It can tell you when a reversal is likely coming. It can give you extremely precise entry and exit points. And much more. But most traders don’t know how to use it correctly, and that’s what I’m going to be teaching you to do.
So what is this indicator and why is it so powerful? It’s called the NYSE TICK and its power comes from the fact that it’s not a price-based indicator like all the other ones out there. Price-based indicators are simply a derivative of price, and by their very nature they are lagging. i.e. They give you the signal after price action does, and consequently get you into the position late (which is the main reason they don’t have a true edge).
But the NYSE TICK is not price-based. Instead, it shows you what’s underneath the hood of the market, so to say, by revealing the momentum of all the stocks on the New York Stock Exchange. So if you day trade E-mini Futures or ETF’s, this indicator will be invaluable to you. It will show you if a price move is truly strong, as well as when it has gotten too extended and could be about to reverse.
There are many ways to use the TICK to profit, but I’m going to be sharing 2 of the most powerful techniques
Technique #1: Timing The Perfect Entry
When the market is making a strong directional move during the day (i.e. it is strongly trending in one direction), the best thing to do is to get on board in that direction. However, many traders struggle to find the right entry technique that can get them in a safe place with a tight stop so their risk is small. The TICK can help you find incredibly precise entries. And the best part is that it’s relatively simple to do.
The Index (upper pane) is opens and drives straight up in a strong up trend. If you’re waiting for a decent pullback, you’re left in the dust as the pullbacks are extremely shallow. However, by timing your entry with the downward spikes in the TICK indicator, you’re able to get in at very precise points. Both entry points are circled in the price chart (top pane) and their corresponding TICK signal is also circled in the bottom pane.
As you can see, the first entry comes in when price is putting in a shallow pullback but the TICK spikes down below the red horizontal line (its zero line). The second entry occurs when price barely pulls back at all and yet we get a nice strong dip in the TICK. This is a place where it would have been nearly impossible to enter looking at price alone, or a price indicator, but the TICK gives us a nice signal for entry.
Why are these good entries and what do the downward spikes in the TICK mean? Since the TICK is showing you the collective momentum of the underlying stocks when you’re trading an index (such as the E-mini S&P, Russell, Nasdaq etc.), it tells you that a lot of stocks are currently getting sold but the index price is holding up well, and in a bullish context such as this strong up trend day, those moments when many stocks are temporarily oversold are the best times to enter a position.
The ability of the TICK indicator to time trades in such a context is truly uncanny, and I’ve made countless thousands of dollars over the years just from this technique alone.
Technique # 2: Avoiding Losing Trades
Nothing hurts more in trading than taking multiple consecutive losses, and nothing results in multiple consecutive losses than getting chopped up by trying to trade a breakout or momentum in a range-bound sideways market. I’m sure you’ve experienced it many times before. I know I did in my early trading days.
The tough thing about these markets is that they make sudden sharp price moves and fool you into thinking that a breakout or momentum move is coming. But it never comes and instead price reverses and stops you out.
What if there were a way to be able to tell that you’re in this type of environment before you get killed trying to trade it incorrectly? Luckily, there is, and it comes courtesy of the TICK indicator.
Take a look at the chart below. What you want to pay attention to this time is not the individual spikes in in the TICK, but rather the overall distribution of the bars above and below the red zero line. What you’ll notice is that in general the TICK is spending a similar amount of time above and below the zero line, and the extremes its making to each side are similar in strength. This is a tell tale sign that the market is range-bound and likely to continue moving sideways.
By contrast, compare this chart with the one I showed earlier in technique # 1. Right from the open the TICK spends the vast majority of its time above the zero line, and when it spikes down the spike is short-lived. That tells you that the bulls are in control and that you can take momentum trades in the direction of that movement.
But when you see a TICK distribution like one in this chart, you know that the market is neutral and that trying to buy a breakout to new highs is likely to be a loss since breakouts are not likely to stick, and same with the breakdowns. In this instance, you can avoid losing trades just by understanding the market environment better and not being fooled by the price action. The neutral TICK indicator is your signal to avoid momentum and breakout trades.
If you found this article useful and would like a lot more useful tips and tricks about the best techniques and strategies being used by pro day traders, then you should sign up for a free webinar hosted by Ziad. You can access it by clicking on the button below.