Tick volume

Tick Volume

Tick Volume is a crucial, yet often misunderstood, concept in technical analysis. Unlike traditional volume which measures the number of shares or contracts traded within a specific timeframe (like a day or an hour), tick volume measures the number of *price changes* – or "ticks" – within that same timeframe. It provides a unique perspective on market activity, often revealing insights into institutional order flow and potential short-term price movements. This article aims to provide a comprehensive understanding of tick volume for beginners, covering its definition, calculation, interpretation, advantages, disadvantages, and how it relates to other technical indicators.

What is Tick Volume?

At its core, tick volume counts every price change, regardless of size. Whether the price moves up or down by a single tick (the minimum price increment for a given asset), it’s registered as a single tick. Therefore, a period with high tick volume indicates a lot of price fluctuation, while low tick volume signifies relative price stability. It's important to understand this differs significantly from Volume.

Consider a stock trading at $100. If the price moves to $100.01, then to $100.02, then back to $100.01, and finally to $100.03, that represents four ticks of volume. The actual number of shares traded in each of those price changes isn't considered; only the *change* in price matters.

How is Tick Volume Calculated?

The calculation of tick volume is relatively straightforward. It's simply a count of the number of times the price changes direction (up or down) within a defined period. Most trading platforms and charting software automatically calculate and display tick volume.

Here’s a breakdown:

**Define the Timeframe:** Tick volume is typically displayed for various timeframes, such as 1-minute, 5-minute, 15-minute, hourly, or daily charts.
**Monitor Price Changes:** The system continuously monitors the price of the asset.
**Count the Ticks:** Each time the price moves up or down, the tick counter increments by one.
**Reset for New Period:** At the end of the specified timeframe, the tick volume is recorded, and the counter resets for the next period.

Because tick volume only counts *changes* in price, it doesn't necessarily reflect the quantity of shares or contracts being traded. A large block trade might only register as a single tick if it doesn't significantly move the price. Conversely, numerous small trades causing frequent price fluctuations can generate high tick volume. This is why understanding its limitations is vital (explained further below). See also Order Flow.

Interpreting Tick Volume

Interpreting tick volume requires understanding its relationship to price action. Here are some key interpretations:

**High Tick Volume:** Generally indicates strong interest and potential volatility. It suggests that buyers and sellers are actively battling for control, leading to frequent price swings. High tick volume often precedes significant price movements. It can validate a trend or signal a potential reversal. Look for divergence between price and tick volume to identify potential shifts in momentum.
**Low Tick Volume:** Suggests a lack of strong conviction and potential consolidation. The market is relatively calm, and price movements are limited. Low tick volume often occurs during quiet trading sessions or when the market is awaiting a catalyst. It can indicate a weak trend or a potential breakout is brewing.
**Increasing Tick Volume with Rising Prices:** Often confirms an uptrend. It indicates strong buying pressure and suggests the trend is likely to continue. This is a bullish signal.
**Increasing Tick Volume with Falling Prices:** Suggests a downtrend is gaining momentum. It indicates strong selling pressure and suggests the trend is likely to continue. This is a bearish signal.
**Divergence:** This is perhaps the most valuable signal. If the price is making higher highs, but tick volume is decreasing, it suggests the uptrend may be losing steam. Conversely, if the price is making lower lows, but tick volume is increasing, it suggests the downtrend may be losing steam. This divergence can signal a potential trend reversal. See more about Divergence.
**Spikes in Tick Volume:** Sudden, significant increases in tick volume often signal institutional activity or the release of important news. These spikes should be investigated further to understand the underlying cause.

Tick Volume and Institutional Order Flow

Many traders believe tick volume can provide insights into the activity of institutional investors, such as hedge funds and mutual funds. Large institutions often execute trades in smaller blocks to avoid significantly impacting the price. This "spoofing" or "iceberging" tactic can result in numerous small trades that generate high tick volume without causing a large price movement. Therefore, a spike in tick volume *without* a corresponding significant price change might indicate institutional accumulation or distribution. Understanding Market Depth is helpful here.

However, it's crucial to remember that tick volume is not a foolproof indicator of institutional activity. Other factors, such as algorithmic trading and high-frequency trading (HFT), can also contribute to high tick volume.

Tick Volume vs. Traditional Volume

| Feature | Tick Volume | Traditional Volume | |---|---|---| | **Measurement** | Number of price changes | Number of shares/contracts traded | | **Focus** | Price activity | Actual traded quantity | | **Sensitivity** | Highly sensitive to small price fluctuations | Reflects actual trading activity | | **Interpretation** | Indicates interest and volatility | Indicates strength of a trend | | **Institutional Order Flow** | Potentially provides clues about institutional activity | Directly reflects trading volume | | **Lagging/Leading** | Can be a leading indicator | Generally a lagging indicator |

While traditional volume tells you *how much* is being traded, tick volume tells you *how actively* the price is being contested. Both are valuable tools, but they provide different perspectives. Combining both volume and tick volume can offer a more comprehensive understanding of market dynamics. Explore Volume Spread Analysis to learn more.

Advantages of Using Tick Volume

**Early Signal:** Tick volume can often provide an early warning of potential price movements, even before traditional volume starts to increase.
**Identifies Volatility:** It's an excellent indicator of market volatility and potential trading opportunities.
**Highlights Institutional Activity:** Can potentially reveal clues about institutional order flow.
**Confirmation of Trends:** Confirms the strength of existing trends.
**Divergence Signals:** Provides valuable divergence signals that can indicate potential trend reversals.
**Less Lagging:** Generally less lagging than traditional volume.

Disadvantages of Using Tick Volume

**Doesn't Reflect Quantity:** It doesn't tell you how many shares or contracts are being traded, only how often the price is changing.
**Susceptible to Noise:** Can be affected by "noise" from algorithmic trading and HFT.
**False Signals:** Can generate false signals, especially during periods of low liquidity.
**Requires Interpretation:** Requires careful interpretation and should not be used in isolation.
**Platform Dependency:** Tick volume data may vary slightly between different trading platforms.
**Limited Availability:** Not all brokers or platforms provide tick volume data.

Combining Tick Volume with Other Indicators

To maximize its effectiveness, tick volume should be used in conjunction with other technical indicators. Here are a few examples:

**Moving Averages:** Use moving averages to identify the overall trend and then use tick volume to confirm the strength of the trend. A rising moving average combined with increasing tick volume suggests a strong uptrend. See Moving Average Convergence Divergence (MACD).
**Relative Strength Index (RSI):** Use RSI to identify overbought or oversold conditions and then use tick volume to confirm the signals. If RSI is overbought, but tick volume is decreasing, it suggests the overbought condition may not be sustainable.
**Fibonacci Retracements:** Use Fibonacci retracements to identify potential support and resistance levels and then use tick volume to confirm breakouts or reversals.
**Bollinger Bands:** Use Bollinger Bands to identify volatility and then use tick volume to confirm breakouts or squeezes. A breakout from Bollinger Bands combined with increasing tick volume suggests a strong move. Learn more about Bollinger Bands.
**Ichimoku Cloud:** Use the Ichimoku Cloud to identify the trend and potential support/resistance levels, and then use tick volume to confirm the strength of the trend or potential reversals.
**Elliott Wave Theory:** Use Tick volume to confirm the impulses and corrections within an Elliott Wave pattern. Increased volume during impulsive moves and decreased volume during corrective moves are typical. Elliott Wave
**VWAP (Volume Weighted Average Price):** While VWAP uses traditional volume, comparing tick volume to VWAP can highlight areas of price acceptance or rejection.
**On Balance Volume (OBV):** OBV uses volume to assess buying and selling pressure; comparing OBV to tick volume can offer a more nuanced view. On Balance Volume
**Average True Range (ATR):** ATR measures volatility; combining ATR with tick volume can provide a more comprehensive assessment of market activity. Average True Range
**Chaikin Money Flow (CMF):** CMF measures buying and selling pressure over a specified period; comparing CMF to tick volume can help identify potential divergences. Chaikin Money Flow

Strategies Using Tick Volume

**Tick Volume Breakout Strategy:** Identify a consolidation pattern and wait for a breakout accompanied by a significant increase in tick volume.
**Tick Volume Divergence Strategy:** Look for divergences between price and tick volume to identify potential trend reversals.
**Tick Volume Confirmation Strategy:** Use tick volume to confirm signals from other technical indicators.
**Institutional Order Flow Strategy:** Attempt to identify institutional accumulation or distribution based on spikes in tick volume without corresponding price changes. This requires advanced understanding and careful analysis.
**Scalping with Tick Volume:** Utilize short-term tick volume spikes to identify quick trading opportunities in volatile markets.

Conclusion

Tick volume is a valuable tool for traders of all levels, providing unique insights into market activity and potential price movements. While it has its limitations, when used in conjunction with other technical indicators and a solid understanding of market dynamics, it can significantly improve your trading decisions. Remember to practice risk management and always test your strategies before deploying them with real capital. Further study of Candlestick Patterns will also be beneficial.

Start Trading Now

Sign up at IQ Option (Minimum deposit $10) Open an account at Pocket Option (Minimum deposit $5)

Join Our Community

Subscribe to our Telegram channel @strategybin to receive: ✓ Daily trading signals ✓ Exclusive strategy analysis ✓ Market trend alerts ✓ Educational materials for beginners