From the August 01, 2009 issue of Futures Magazine • Subscribe!

A cumulative solution to an age-old problem

CUMULATIVE TICKS

It is possible to estimate day type, even as the session is unfolding, by using ticks not as an instantaneous value but by accumulating tick values and comparing the accumulation with historical averages. The accumulation of ticks is referred to as cumulative ticks, or CTs.

“My kind of day” shows the cumulative tick indicator on Feb. 11, 2009. This is based on the NYSE ticks. In the chart, one-minute averaged CTs are shown as a dotted line that overlays the one-minute E-mini S&P chart. During the session, the CTs’ line meanders to the downside, which might imply a rotational market with a selling bias. As a result, the trader looks to short the market on an upward spike. The second chart shows a short entry from the day’s previous high. This trade was supported because the equivocal nature of the CTs’ indicated we were not in the midst of a rally.

A histogram at the bottom of the CTs’ chart gives the one-minute OHLC values of the ticks that are accumulated by the indicator. In the main area of the chart, there are nine horizontal lines. The middle horizontal line is the CTs’ zero, or open, line and used as a reference level. The lines above and below the zero line are time-of-day pivots where the CTs are averaged over the last 50 trading days (the number of trading days and the specific time-of-day pivots are input parameters to the indicator).

The time-of-day pivots shown are (Eastern time zone):

• 10:30 a.m. (completion of first hour)

• Noon

• 1:30 p.m. (afternoon pivot)

• 3 p.m. (beginning of the last hour)

There are reference pivots for bullish days — the pivot time-of-day lines above the zero line when the CTs’ accumulation finished above zero, and reference pivots for bearish days — the pivot time-of-day lines below the zero line when the CTs’ accumulation finished below zero. The CTs are collected over the averaging period and counters are maintained to track values at the pivots. As the day’s CTs are collected, they can be compared with the historical averages. By comparing the current session CTs behavior with the time-of-day pivot averages, the trader is able to estimate day type.

“Going long” from Jan. 2, 2009, shows “unequivocal CTs.” There is little doubt that this is a strong trend day up. In this case, the trader never goes short, but looks to get long through some retracement. For example, retracement to a 20-period exponential moving average (EMA) line on a three-minute chart. This is shown in the second chart.

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