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Understanding of tick volume

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charlotte nc
Trading Experience: Master
Platform: ninjatrader
Broker/Data: NinjaTrader
Favorite Futures: Emini (ES, YM, NQ, ect.)
Posts: 388 since Jan 2015
Thanks: 71 given, 965 received

For what it's worth...

Hi ScottM,

I don't personally trade this way, so maybe I am not the best person to give you advice in this matter as I am not a chart type of trader, but the last I recall looking, the ADX was a good indicator to pick up trends. You can likely identify trends and ranges with this with the right setting. But like every other indicator they are backward looking and not forward looking.

If I was doing it from a chart, I suppose I would use something like the ADX to define if there was a trend or not.

For trends, enter on the pullbacks
For ranges, enter on the pop outs.

Provided that the trends and ranges are long enough, and you have the settings such that you are capturing macro level events and not small changes every 20 ticks for example, this is about what you could expect.

1. Either a trend or range is established
2. Your ADX picks up on this and you identify your opening. (Enter on either a pullback or pop out) The market continues doing what it was doing and pick the right side with this logic.
3. *** Hope that during your next K number of trades you can repeat the success of your first attempt at this. (Assuming the market held and your first attempt even worked)
4. The market will enviably change, either from a range to a trend, or a trend to a range, and eventually the logic that worked will fail. You will wait for a while for new ADX signal to confirm the change and you will try again the opposite way.

But overall here is the goal.

Capture the right side shortly after the market settles into either a trend or range for the first trade, then repeat and succeed 1 to 2 more times. On your 3rd or 4th attempt expect to lose because the market will flip the opposite way. So all other things even, you should hope for 2 winners for every 1 loser.

In order to get this you will have to have solid profit targets and stop losses that are statistically in line with the present market. You can't always just blindly shoot for 50 point PT and use a 1 tick SL for example. This is a whole other topic, that I have a lot of insight on. It is way easier to get this part right then it is to pick direction in my opinion.

But no matter what, going with indicators you are going to be trying to predict the future based on past data, and this will lead to stale assumptions a lot of the time. You will often get into a terrible game of whack a mole where things work sometimes and don't other times, and you will never quite get a 100% perfect recipe. But there will never be one. The best you can hope for is to gain some edge from using past data to predict future direction.... Level 2 data might give you a slight predictive insight or two, but a lot of this is noise too. (This is a whole other topic though). There are edges that can be gained trying to pick direction, but they are relatively small compared to other edges.

The better edges in my opinion are.

1. Never crossing the spread..... ever!
2. Optimizing your queue position
3. Sizing your exit ticks relative to the market volatility to exploit ranges that market moves in

I'm honestly not in the discretionary trading world at all, so there are others that can probably give you better advice in this area. My comments will likely be generic, and fairly obviously at best.

Good luck!


scottm View Post

Thanks for the insight. Reading through your very technical blog, I appreciate your comments and your in-depth research, wisdom and experience.

I am looking for one or both of the following in a tick tool: Positive and ongoing confirmation of a trend direction, or a predictive entry indicator (like seeing a build of up pressure before a big uptrend). I have seen @shadowtrader promo his cumulative tick tool on one of his weekend updates and thought it looked interesting, so I'm trying to explore that or similar ideas. I am (getting) pretty adept at personalizing and customizing existing studies/code, but I am no programmer.

My current indicators-of-choice usually give good entry/exit signals, but sometimes show me the exit on the first pull back of a very long leg up, meaning I miss the juicy part of the trade. Or worse, indicators will show buy signals on every minor pop of a long leg down, creating a recurring bull trap.

I'm using:
  • Forecast Oscillator as a predictive entry/exit too, but it can be very choppy unless the trend is strong.
  • CCIs and multi-frame RSIs to confirm specific entry points. These can be late on entry and exit, minimizing profits.
  • SMA ribbon as a visual confirmation of trends and changes. Untwisting the ribbon is a good confirmation for a new trend after a consolidation period.
  • Ultimate Oscillator as a buying pressure gauge and for top/bottom divergences.

I am NOT using MACD, True Strength and similar tools, which work some of the time, but can also give very bad signals in extended trends. I've watched a MACD rise in a market that was cascading down, and visa versa. I like tools that show strong correlation, especially if they keep me from losing. I also have not seen a correlation of volume of trade count be a good indicator at all.

I normally stick with 1, 2 or 5min charts for day trades, but just flipped over to a 10-tick and a 25-tick and loved the good entry and exit points (with a few falsies thrown in). I'm still testing to see which is more profitable, tick or minute, or both together.

What I look for in a new tool is a strong and consistent correlation to entry/exit.

I'm not sure if this helps, but any ideas you can throw at me would be greatly appreciated!

Humbly, scottm

In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
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