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Friday, October 9, 2009
Extreme Ticks and Ambush Setup Entries
In his book "Mastering the Trade", John Carter gives a great overview of market internals and talks about how you can analyze the ticks to become a better trader. The NYSE ticks summarize the number of stocks on the NYSE that are increasing in price versus those that are decreasing in price from the previous price quote.
I've found that it's important to enter trades, especially the ambush setup, on extreme NYSE tick readings, as this will give you the highest probability of getting your targets hit if you trade multiple contracts and scale out of your positions.
Carter gives some tips about using the tick and talks about actions to take when key levels are met (i.e. +/-400, +/-600, +/- 800, +/-1000). However, they're only general guidelines and every day is unique, which calls for some latitude in how you act in particular scenarios. I've found that the market often establishes a tick range for a particular day, and watching the extremes of that daily range can be useful to your trading.
If you take a look at today's action, an ambush trade set up shortly after the opening bell where the Dow rallied from aroun 9720 to 9768. As the market retraced into the ambush zone of 9739 to 9744 at 10:21am, this coincided with the low tick reading of the day at that point and also breached the -600 tick level, a key level that Carter notes shows that there is sustained selling pressure hitting the markets. When the markets reach these extreme levels, the moves often cannot be sustained and thus reverse. If you entered on the low tick reading, your first few targets (+5, +10) would have quickly been filled. It required some patience but the -23.6% target of your remaining contract would have also been filled about an hour later. If you had any doubts about whether to hold on looking for extra gains or to exit, the ticks could have again given you a clue and helped you in your decision. At around 11:24am, the ticks registered a +600 reading, which was near the top of the tick range that the market had already established in the morning. This was a great clue that it was time to take profits.
These were great examples of how useful the NYSE tick can help you better understand what the market is doing and what it will do in the future. Trading is extremely difficult for a number of reasons, but by mastering just a few tools (watching price action, ticks), you can master the markets.
I've found that it's important to enter trades, especially the ambush setup, on extreme NYSE tick readings, as this will give you the highest probability of getting your targets hit if you trade multiple contracts and scale out of your positions.
Carter gives some tips about using the tick and talks about actions to take when key levels are met (i.e. +/-400, +/-600, +/- 800, +/-1000). However, they're only general guidelines and every day is unique, which calls for some latitude in how you act in particular scenarios. I've found that the market often establishes a tick range for a particular day, and watching the extremes of that daily range can be useful to your trading.
If you take a look at today's action, an ambush trade set up shortly after the opening bell where the Dow rallied from aroun 9720 to 9768. As the market retraced into the ambush zone of 9739 to 9744 at 10:21am, this coincided with the low tick reading of the day at that point and also breached the -600 tick level, a key level that Carter notes shows that there is sustained selling pressure hitting the markets. When the markets reach these extreme levels, the moves often cannot be sustained and thus reverse. If you entered on the low tick reading, your first few targets (+5, +10) would have quickly been filled. It required some patience but the -23.6% target of your remaining contract would have also been filled about an hour later. If you had any doubts about whether to hold on looking for extra gains or to exit, the ticks could have again given you a clue and helped you in your decision. At around 11:24am, the ticks registered a +600 reading, which was near the top of the tick range that the market had already established in the morning. This was a great clue that it was time to take profits.
These were great examples of how useful the NYSE tick can help you better understand what the market is doing and what it will do in the future. Trading is extremely difficult for a number of reasons, but by mastering just a few tools (watching price action, ticks), you can master the markets.
