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As a young trader, I first used moving averages, point and figure charts and some Gann methods and
then moved on to the Elliott wave fad. But none of these methods or techniques really gave me a strong
signal for a top or bottom in the market. What I did learn in my early years as a trader was that running
with the masses is a guaranteed subscription to failure. It is said that 80% of the people who trade the
markets lose; from my experience, I'd say this is true.
The losing majority fund the marketwise minority.I wanted a trading method that kept me on the opposite side of the losing public and gave me a more absolute signal in picking tops and bottoms in the market. I also wanted an undiscovered method that the trading masses hadn't overused. That eliminated moving averages, which got me short at bottoms and long at tops, and Gann and Elliott methods, which pointed to a top or bottom after it occurred.
What I found was the tick index, carried by most live intraday quote services, and I have found it to
accurately forecast market tops and bottoms and indicate buy and sell levels. This method uses intraday
uptick and downtick readings of the New York Stock Exchange (NYSE) to forecast tops and bottoms in
the Dow Jones Industrial Average (DJIA) and to generate buy and sell signals that span one to 10 days.
UPTICKS AND DOWNTICKS
The tick index is the difference between the number of issues trading with the last trade higher (an
uptick) from the previous price and issues trading with the last trade lower (a downtick) from the
previous price. For example, if exchange X has 500 issues trading on an uptick and 250 issues trading on
a downtick, the tick index would be +500 - 250 = +250.
This is simple enough, so let's go on in our thinking. Suppose it's true that 80% of the public who trade the markets lose. If you trade opposite the public, then you should win 80% of the time, right? But the
question is, how do you know what the public is doing? The tick index can provide a clue.
The uptick and downtick method is a form of contrarian trading. If everyone buys, the tick index goes
extremely positive, which indicates a top. If everyone sells, the tick index goes extremely negative,
forewarning of a bottom. Extreme tick index readings are the key to this method, and they will give the
turning points, sometimes within seconds of market highs or lows.
Although the tick index is calculated from intraday tick readings, buy and sell signals generated from the
tick index may span from one to 10 days. Using NYSE tick readings as an indicator of a high in the
DJIA, I look for a double top with extreme upticks at both high points. The second extremely positive
tick index reading will be my sell signal. The double top can occur the same day or, at the most, have 10
trading days between. For a bottom, I look for a double low in the DJIA with extreme downticks at both
low points. A buy signal is generated on the second extremely negative tick index reading. Again, the
second test of support can occur in the same day or as far back as 10 trading days.
VOLUME FOR CONFIRMATION
Volume is an element in determining whether the tick index is at an extreme reading. The higher the
volume of trades, the more ticks are needed to be considered an extreme reading. You can see in Figure 1 how volume interacts with extreme ticks. Usually, the higher the extreme tick index reading (compared to volume), the more significant the move thereafter. This makes sense, as the public is more convinced about the direction of the market, which leads to a more powerful move opposite their bias. One example
of this is the January 9,1991, reading of 890 downticks at the 2470 area on the NYSE with a volume of
191 million shares, and a January 14, 1991, reading of 880 downticks in the 2465 area with volume at
121 million. The second low was my buy signal, and a rally of 500 points followed. These extreme
downtick readings signified that most participants were convinced of more downside activity, but
obviously they were incorrect.
Figure 1 presents a couple of recent months of trading to illustrate my method of watching upticks and
downticks for buy and sell signals. All tick readings are intraday, and volume confirmed the tick index readings as extreme. The top chart is the daily bar chart of the DJIA. The lower chart is a bar chart of NYSE intraday tick readings, where each bar reveals the day's range of tick index values. Trades were generated by buying the second test of support (double bottoms) when the number of downticks reached a second extreme, or by selling the second test of resistance (double top) during the second extreme reading of the number of positive ticks.
The tick index is not always as accurate as it was here, but when used with other techniques, the tick method can indeed help provide confirmation for buy and sell signals.
[You must be registered and logged in to see this image.]
FIGURE 1: The top chart is the daily bar chart of the DJIA and the lower chart is a bar chart of NYSE
intraday tick readings, where each bar reveals the day's range of tick index values. Trades were generated by buying the second test of support (double bottoms) when the number of downticks reached a second extreme, or by selling the second test of resistance (double top) during the second extreme reading of the number of positive ticks.
then moved on to the Elliott wave fad. But none of these methods or techniques really gave me a strong
signal for a top or bottom in the market. What I did learn in my early years as a trader was that running
with the masses is a guaranteed subscription to failure. It is said that 80% of the people who trade the
markets lose; from my experience, I'd say this is true.
The losing majority fund the marketwise minority.I wanted a trading method that kept me on the opposite side of the losing public and gave me a more absolute signal in picking tops and bottoms in the market. I also wanted an undiscovered method that the trading masses hadn't overused. That eliminated moving averages, which got me short at bottoms and long at tops, and Gann and Elliott methods, which pointed to a top or bottom after it occurred.
What I found was the tick index, carried by most live intraday quote services, and I have found it to
accurately forecast market tops and bottoms and indicate buy and sell levels. This method uses intraday
uptick and downtick readings of the New York Stock Exchange (NYSE) to forecast tops and bottoms in
the Dow Jones Industrial Average (DJIA) and to generate buy and sell signals that span one to 10 days.
UPTICKS AND DOWNTICKS
The tick index is the difference between the number of issues trading with the last trade higher (an
uptick) from the previous price and issues trading with the last trade lower (a downtick) from the
previous price. For example, if exchange X has 500 issues trading on an uptick and 250 issues trading on
a downtick, the tick index would be +500 - 250 = +250.
This is simple enough, so let's go on in our thinking. Suppose it's true that 80% of the public who trade the markets lose. If you trade opposite the public, then you should win 80% of the time, right? But the
question is, how do you know what the public is doing? The tick index can provide a clue.
The uptick and downtick method is a form of contrarian trading. If everyone buys, the tick index goes
extremely positive, which indicates a top. If everyone sells, the tick index goes extremely negative,
forewarning of a bottom. Extreme tick index readings are the key to this method, and they will give the
turning points, sometimes within seconds of market highs or lows.
Although the tick index is calculated from intraday tick readings, buy and sell signals generated from the
tick index may span from one to 10 days. Using NYSE tick readings as an indicator of a high in the
DJIA, I look for a double top with extreme upticks at both high points. The second extremely positive
tick index reading will be my sell signal. The double top can occur the same day or, at the most, have 10
trading days between. For a bottom, I look for a double low in the DJIA with extreme downticks at both
low points. A buy signal is generated on the second extremely negative tick index reading. Again, the
second test of support can occur in the same day or as far back as 10 trading days.
I look for a double top with extreme upticks at both high points.The second high uptick reading will be my sell signal.
VOLUME FOR CONFIRMATION
Volume is an element in determining whether the tick index is at an extreme reading. The higher the
volume of trades, the more ticks are needed to be considered an extreme reading. You can see in Figure 1 how volume interacts with extreme ticks. Usually, the higher the extreme tick index reading (compared to volume), the more significant the move thereafter. This makes sense, as the public is more convinced about the direction of the market, which leads to a more powerful move opposite their bias. One example
of this is the January 9,1991, reading of 890 downticks at the 2470 area on the NYSE with a volume of
191 million shares, and a January 14, 1991, reading of 880 downticks in the 2465 area with volume at
121 million. The second low was my buy signal, and a rally of 500 points followed. These extreme
downtick readings signified that most participants were convinced of more downside activity, but
obviously they were incorrect.
Figure 1 presents a couple of recent months of trading to illustrate my method of watching upticks and
downticks for buy and sell signals. All tick readings are intraday, and volume confirmed the tick index readings as extreme. The top chart is the daily bar chart of the DJIA. The lower chart is a bar chart of NYSE intraday tick readings, where each bar reveals the day's range of tick index values. Trades were generated by buying the second test of support (double bottoms) when the number of downticks reached a second extreme, or by selling the second test of resistance (double top) during the second extreme reading of the number of positive ticks.
The tick index is not always as accurate as it was here, but when used with other techniques, the tick method can indeed help provide confirmation for buy and sell signals.
[You must be registered and logged in to see this image.]
FIGURE 1: The top chart is the daily bar chart of the DJIA and the lower chart is a bar chart of NYSE
intraday tick readings, where each bar reveals the day's range of tick index values. Trades were generated by buying the second test of support (double bottoms) when the number of downticks reached a second extreme, or by selling the second test of resistance (double top) during the second extreme reading of the number of positive ticks.
