Trading Tip! – TICK and TRIN like Yin and Yang

**Warning: This tip is NOT for long term investors, BUT IS ESSENTIAL to day traders(buy and sell within the day) and swing traders (buy and sell within a few days).

Ok, so these two little symbols, TICK and TRIN mean a world of difference in giving you the upper hand on the trading field.  This tip goes really well with index ETF trading, usually you pick your bull and bear ETFs and get them all warmed up and ready to trade.  Many novice day traders (like myself) have the NASDAQ, S&P 500, and DOW indexes up on their monitor to use as indicators on when to buy and when to sell.  All this does is tell us what the current prices are, and doesn’t give us any an indication of where they may be going.  But that is where our two good friends TICK and TRIN come in! 🙂

The TICK tracks how many stocks are going up versus how many are going down on the New York Stock Exchange.  A positive number is a sign of a bull market, or that the market will go up, a negative number is the sign of a bear market, or that the market will go down.  This is a very short-term indicator, it is essential that you view it on real-time because if there is a big switch, lets say from 400 to -650, then moments later there could be a downturn.  It sounds too good to be true, right? well that is because it is, because it only tells you have many stocks are ticking up or down, and doesn’t take into account VOLUME.  But just like Yin is nothing without Yang, TICK is nothing without TRIN.

The TRIN tracks the market in a similar way but is calculated with volume.  The equation looks like this:

TRIN = (Up Ticks/Up Tick’s Volume) / (Down Ticks/Down Tick’s Volume)

So if the TICK is negative, maybe at -300, one might think “SHORT SHORT SHORT”, but wait a sec, what if the bulk of the volume is being traded in positive direction? Then we have a problem, we have just committed money to an investment off of one indicator, that may or may not be right, this sounds a little like gambling to me.  SO we must always look at both, the TICK and TRIN, if and ONLY IF they are both showing strong signs of positive or negative movement, then we trade on the data, otherwise the worst thing you lose is an opportunity, not your money.

This chart from http://daily-stocks.netfirms.com/trinandtick.htm gives some great guidance on what the values of TICK and TRIN mean:

I encourage everyone to first pull up these two indicators ($TICK and $TRIN) and watch them as you watch the market.  Wait until you feel comfortable with how they affect and predict where things are going before you use real money, and soon enough you will be loving TICK and TRIN as much as I do!

I understand there are many terms that I did not define in this post, please leave any questions you may have in the comment box below, THANKS! 😀

2011

07/15

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Investing Strategies

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