In the previous chapter we identified the most powerful tools available to us during the times the New York Stock Exchange (NYSE) is open. These tools used together with the measured move (MM) give us a directional bias and path of least resistance for the day. One tool in particular deserves a chapter all on its own: the tick divergence. The tick divergence strategy is based on an observation that was made during the 2008 financial crash. The observation is relatively simple but extremely powerful. When the market is trending in an extreme way, up or down, the tick divergence tells us when it will end or if the move will continue.
Our goal is to identify the difference between the types of tick extremes. We will also discuss how to trade traditional high or low ticks of the day for intraday profits.
Traditionally, when traders witnessed the new high or low tick of the day, it was seen as a profit-taking signal and a reversal.
What changed? In the 2008 crash, we witnessed and developed a strategy around an observation in the market. It's known as the tick divergence.
There are two different types of tick extremes:
What is considered ...