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The TICK is a common market internal tool that traders use to gauge sentiment, but traders who adjust its intraday levels according to volatility will be amply rewarded, advises Corey Rosenbloom of AfraidToTrade.com.

If you use the NYSE TICK (or related market internal) in your trading decisions or analysis, it’s important to note changes in the indicator that occur as a result of volatility.

In other words, a registered TICK reading of plus or minus 1,000 (a popular level) means one thing in a low-volatility environment and another thing in a high-volatility environment.

Let’s take a moment to update the current TICK volatility levels and note how TICK levels change with volatility.

Here’s the updated chart of the Dow Jones Index with the NYSE TICK from 2010 to present:

Click to Enlarge

Let me take a moment to explain what we’re seeing in the chart above.

The Dow Jones index is on the top level but it could just as easily be the S&P 500, NASDAQ, or Russell.

The indicator below is not the NYSE TICK itself, but a 20-period (20-day) simple moving average of the session HIGH of the TICK (green) and another 20-day simple moving average of the session LOW of the TICK.

In other words, one bar on the histogram represents about one month of price action in the index.

The key take-away is that average intraday TICK highs and lows change as a factor of market volatility—average intraday highs and lows move under the 1,000 threshold during low-volatile (‘creeper rallies’) periods and increase above 1,000 during high-volatile (sharp/sudden sell-off) phases.

We can see this much clearer if we take an isolated look at NYSE TICK Highs (20d average)…

Click to Enlarge

And then TICK Lows (20d SMA):

Click to Enlarge

Getting straight to the point—what’s the purpose of charts like these?

NEXT PAGE: How Volatility Affects the TICK