You may have heard traders talking about using market internals and saying things like ‘looking for 1k tick’ or ‘watch the tick’. On this page I will try to explain how to use these internals in your trading. We will talk about $TICK and Volume.
I’ll use ThinkorSwim (ToS) as the charting platform but most if not all of the internals should be available with all the platforms.
A ‘tick’ is the minimum upward movement or downward of an tradable unit. $TICK is the measurement of upticks (rising price) minus downticks (falling price) for all of the stocks trading on the NYSE. An uptick is a rising stock price and a down tick is a falling stock price. $TICK can be a good measure of relative selling or buying as well as market activity.
The chart below has a 1-minute $TICK on the top and a 1-minute /ES on the bottom. The /ES is the root symbol for the S&P 500 futures.
The RED ARROW on both charts denotes the start of selling on the S&P 500. Notice how the values for $TICK also decline sometimes even reading greater than 1000. That means there were 1000 more stocks falling on the NYSE than were rising. $TICK values greater than 1000 are considered to be extreme values by many traders.
The MAGENTA LINE on both charts represents the time period from 13:30 to 14:30 that the selling took place.
NEGATIVE 1000 or greater $TICK values usually represent peaks in the SELLING push.
POSITIVE 1000 or greater $TICK values usually represent peaks in the BUYING push.
Traders who scalp the futures sometimes use a technique for buying the indexes (/ES, /NQ, /YM, /TF) at the extreme outer edge of the negative $TICK values as a mean reversion trade. They can also attempt to sell the extreme up ticks for a quick trade at the extreme positive values.
TIP: $TICK can also give you a good idea of the trend for the day, though it tends to be a very short term indicator and backward looking in that regard.
RULE OF THUMB: When the $TICK remains positive on the day bullish momentum can continue. When the $TICK remains negative, bearish momentum can continue. However, if the $TICK should rise over +1000, in the short term the market will likely soon reverse because it has potentially become overbought. The reverse is also true. If the $TICK should fall below -1000, in the short term the market will likely reverse because it has become very oversold.
If you happen to be long when the $TICK begins to rise over +1000 or short when the $TICK begins to fall below -1000, you might need to begin to lighten up on your positions or close them entirely in anticipation of a reversal.
Always use the $TICK in connection with other factors to make your decision. However, as a quick read on market sentiment, the $TICK is a valuable tool.
Trading volume is an important metric to watch when trying to plan trades during the day. Volume can show you where support and resistance areas are by the reaction of the buyers and sellers in the market.
Remember the market goes down when there are more sellers and the market rises when there are more buyers. Generally, when a trade takes place on the ASK, it is considered to be BUYING. When a trade takes place on the BID is it considered SELLING.
TIP: Not all ask trades are buys and not all bid trades are sells, but for our purposes this general classification works in the market.
Using volume is sometimes called Volume Spread or Volume Spread Trading. $UVOL includes all stocks with volume that are up at least 0.01 on the day and $DVOL includes all stocks volume that are down at least 0.01 on the day.
The chart below is the same setup as the previous chart. /ES futures are on the top and $VOLSPD is on the bottom. $VOLSPD is the Up Volume – Down Volume Difference.
The RED ARROW marks the start of the selling volume and the start of the price falling.
The MAGENTA LINE denotes the timeframe of the market trading.
Notice as difference in volume goes from positive to negative the market is trading lower. It is also important to note that while volume difference made new lows at the end of the day, the market prices did NOT make new lows.
Other Market Internals Symbols
Below are some of the other internals available in ToS for your trading. I don’t use $TRIN because many of the inverse ETFs are included and distort the readings. These are just a selection of the many internals available.
RULE OF THUMB: Remember to keep it simple, information overload is just as bad as trading blind.
All US Indexes
Chart Setup Example in ThinkorSwim
Here is one of my screens that I use to trade the Russell 2000 futures (/TF) and the e-mini S&P 500 futures (/ES). The index futures are on the right side with /TF at the top and /ES at the bottom.
On the left, the group of 4 small charts, are the volume internals and $TICK.
I won’t cover the Advance/Decline in this brief explanation of market internals because I don’t find it adds value to the discussion.