Method to Anticipate a Sell-off

[Soultrader 12]

The tools of the trade: TRIN, TICK, prem, pc ratio, and tape are all important tools when understanding market internals. Understanding market internals is like a xray of a patient. Without it you do not fully have a clear picture of the problems.

 

One way to look for market strength or weakness is by looking at the TICK's. The TICK and price move in very similar ways. If the TICK follows price, you have confirmation in that direction. However, if the TICK's are unable to follow price and a divergence exists, look at this as a warning signal. Perhaps the market has lost its steam.

 

The chart posted below from August 23rd, 2006. After a decent morning rally, we met resistance right in the value area. Notice the double top and quick rejection of price which led to a 100 point decline. It is close to impossible to catch the entire ride down. However, by understanding market internals you could have anticiapted a sell-off or even a warning signal.

 

Look at the post below:

[Soultrader 12]

Notice the opening rally. However, if you take a close look at the TICK's you will see a price and TICK divergence. Price is going up and the TICK is making lower highs. This was clearly a warning signal. If you were long it would of been a good signal to close most of your position. If you were flat it was a good signal to pick a short entry setup.

 

One setup I use is the breakdown of the value low pivot at 11355. I will sell the retracement back to the pivot. Notice the TICK as price broke this pivot. It went from trading in the positive territory to the negative. This was a good confirmation of a shift in market sentiment.

 

[1time 10]

This strategy is quite advanced for a beginner like myself. Anyway I can learn more about the TICK or the value low pivots? Thank you

[Labcast 10]

This strategy is quite advanced for a beginner like myself. Anyway I can learn more about the TICK or the value low pivots? Thank you

 

A video on the TICK's can be found in this thread.

 

Another video on a trading strategy using the TICK's. CLICK HERE.

 

Check this thread for market profile trading strategies.

 

Hope this helps.