E-mini Trading Secret: How To Use The NYSE TICK Chart
The majority of retail traders focus far too much of their time on lagging indicator analysis. The majority of good trading decisions can be made with a few simple pieces of information. Price, volume (in some cases), and if you are trading the e-minis the NYSE TICK chart reading. The TICK chart as it is often referred to as, is one of only a few leading indicators. It is used to anticipate short term areas of support and resistance.
Futures market professionals know that to take advantage of short term overbought and oversold value areas they must constantly monitor the TICK chart. The math behind the chart itself is quite simple. It plots the up ticking vs. down ticking stocks traded on the New York Stock Exchange. The majority of pros watch the tick on a low time frame chart in order to see quick swings in the readings.
Experienced e-mini traders use the chart in a variety of ways but the simplest way to understand its benefits is to use the chart to identify extreme overbought and oversold market conditions. Theory has it that when tick extremes (readings +/- 1000) occur, the market has reached a peak in buying or selling pressure and will not be able to maintain that pressure. Therefore a retracement must occur. Traders will then fade the market until the market has been fully corrected and take the profits from there.
Computer trading is the main reason this chart is so invaluable. Algorithm trading makes up the majority of volume in the e-mini markets today and identifying areas where programs are likely to enter and exit positions can be very rewarding. Program use TICK extremes to initiate or liquidate positions and traders can exploit that through the use of trend lines on the TICK chart itself. If the TICK is trending down, then common sense would say that sooner rather than later, the market is going to reach a selling extreme and institutional algorithm trading is going to kick in to take advantage of it. The edge is that computer won't recognize that reading until it actually happens. Traders can anticipate which makes this edge exploitable.
Professional e-mini traders can use the knowledge that price is likely to find, at least momentarily, support or resistance at a certain level based off the TICK reading. This edge over other market participants can be exploited by fading the market as the TICK continues on its path. Once an extreme is reached the market corrects and the trader exits his or her position fast enough to collect the profits.
E-mini trading without the use of the NYSE TICK chart is not advised for even the most experienced of traders. In order to be a successful trader, individuals must take advantage of all edges available to them. The NYSE TICK is the biggest edge short term traders have in the market for beating computer trading and long term investors.
Article Source: FxTradingStock.com
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by: Lance Burkhart
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Word Count: 499
Date: Sat, 18 Sep 2010
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