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TimRacette

Breadth, AD Line, Tick, Trin -- How They Can Improve Your Trading?

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The Market Internals are similar to the instrument cluster on your car, without them you really don’t know which direction you are headed or how fast you’re moving.

 

There are four indicators that make up the core market internals:

  • Breadth Ratio
  • Advance/Decline Line
  • Trin
  • Tick

 

Each indicator has a separate reading for the NYSE and NASDAQ, but our primary focus will be on the NYSE.

 

You can setup your trading screen to neatly display all four market internals in both chart form and numeric form. I have mine setup in grid chart format using the Thinkorswim platform.

 

market-internals.png

 

Specific instructions for setting up your own market internals charts using Thinkorswim can be found at the end of this article.

 

Breadth

 

The ‘Market Breadth’ or ‘Breadth Ratio’ is a volume ratio composed of volume flowing into up stocks versus volume flowing into down stocks.

 

The breadth ratio is expressed: Up Volume / Down Volume.

 

This reading is important in relation to where it has been, especially where we are now compared to where we opened on the day.

 

breadth-numbers.png

 

For example:

 

If at 10:00 AM we have 10M shares moving up and 5M shares moving down, the resulting breadth ratio is 2:1 positive (10M/5M), twice as much volume is flowing into up stocks as down stocks.

 

If at 10:30 AM the market has sold off but we now have a breadth ratio of 3:1 positive, this is a signal that the markets are actually becoming stronger and it’s time buy the pullback, so look for a long setup.

 

Out of all four internals, the breadth ratio is the most important.

Advance/Decline Line

 

The ‘Advance/Decline Line’ or ‘A/D Line’ for short, is the second most important of the internals. This indicator tells us the net sum of advancing stocks minus declining stocks.

 

The A/D Line is expressed: # of Advancing Stocks – # of Declining Stocks

 

There are roughly 3000 stocks listed on the NYSE and 3000 on the NASDAQ. An A/D Line reading of 1,500+ is very bullish and a reading of over 2,000 is extremely bullish. On the flipside readings of -1500 and below are very bearish and readings below -2,000 are extremely bearish.

 

These extreme readings are indicative of trending days where once the market continues to trend all the way into the close. We look to the A/D Line in conjunction with the Breadth Ratio to confirm these trend days.

 

For example:

 

A day with 2,500 advancing stocks and only 500 declining stocks would yield a net of +2,000 (an extremely bullish reading). It would take a large catalyst to shift the market direction with a reading this bullish.

 

If on the open you continue to see the A/D Line moving +500, +700, +900, this is a sign of market strength. If however, the market is moving higher, but the A/D Line is moving lower, a divergence has occurred and could be a sign of a market turn.

It’s important to look to the other market internals for confirmation as one indicator alone is not sufficient to confirm a move.

 

Trin

 

TRIN stands for TRaders’ INdex and was developed by Richard Arms in 1989 (it’s also referred to as the Arms Index). Its main purpose is for detecting overbought and oversold levels in the markets

 

The Trin is expressed: # of advancing stocks / # of declining stocks divided by

 

volume of advancing stocks / volume of declining stocks

 

The resulting Trin # is inverse to the market (a + reading is bearish, a – reading is bullish). A ratio of 1.0 means the market is at parity. A reading of 2.0 means much more volume is flowing into declining stocks. A reading of below 0.6 means much more volume is flowing into advancing stocks.

 

With the introduction of inverse ETFs the Trin has lost some of its appeal to intraday traders.

 

John Carter talks about the Trin in his book Mastering the Trade and has this to say…

 

If the Trin closes below 0.6, the market has an 80% change of selling off the next day.

 

If the Trin closes above 2.0, the market has an 80% change of rallying the next day.

If after closing above 2.0 the markets can’t rally the next day, a major selloff could be in store.

 

Tick

 

The NYSE Tick Index gives us the relationship of stocks up ticking versus down ticking at their last traded price. The Tick is an extremely useful tool for intraday traders.

 

For Example:

 

If there are 3000 stocks trading on the NYSE and 1500 trade higher from their previous price and 500 trade lower than their last price the Tick will read +1000. But wait what about the other 1000 stocks? They could be unchanged from their last price.

 

When using the Tick we are looking for extremes to enter or exit a trade. Tick readings of +1000 or -1000 are considered very strong as we typically trade between 1000 most of the time on the NYSE.

 

nyse-tick-chart.png

 

Tips for Using the Tick:

  • Tick readings within |400| indicate chop, ignore them
     
  • On a range day you can look to fade tick extremes
     
  • A 1 period moving average can make it easier to see the trend of the Tick

 

Note the extreme tick readings for the day:

 

  • When we get a high tick and a high in price at the exact same time, this could indicate the high of the day.
     
  • When a high tick prints without a simultaneous high price we can continue to make new highs, until a new high tick is reached (the reverse is true for a low tick followed by new lows).

 

Here are some live trading videos using the tick.

 

Market Internals Setup Instructions

 

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Very nice article, unfortunatly not many traders follow these internals and if they did they are not emphasized as much as they should. I takes time to get used to looking at them and understanding their patterns and levels. :applaud::applaud::applaud:

 

Thank You

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The Market Internals are similar to the instrument cluster on your car, without them you really don’t know which direction you are headed or how fast you’re moving....

 

did you write that article?

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The market internals are what I trade by. That and support and resistance. I have no use for indicators based on price. All the market internals do trend, and it is possible to make sense of them.

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Tim,

 

If you like the Breadth Ratio when trading say the ES, why don't you make a ratio

of the bid-ask volume of ES.

ie ask vol/total vol.

 

Perhaps you have already tried this, in which case I would be interested in your thoughts and comparison of the two ratios.

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Tim,

 

If you like the Breadth Ratio when trading say the ES, why don't you make a ratio

of the bid-ask volume of ES.

ie ask vol/total vol.

 

That's interesting I have not tried that. I'll play with the idea a bit. Thanks.

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That's interesting I have not tried that. I'll play with the idea a bit. Thanks.

 

You are welcome.

 

The reason I mention it, is because a disconnect has taken place between The Indices and the underlying stocks.

I imagine the QE's are to blame, and so while I agree with your comments in this thread, I have come to accept this disconnect and now trade The Indices as stand-alone Instruments.

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To take the other side of that argument in playing devils advocate, the indices (NASDAQ for instance), is made up of individual stocks, the NASDAQ internals therefore are made up of data from those stocks so I still would consider them connected.

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To take the other side of that argument in playing devils advocate, the indices (NASDAQ for instance), is made up of individual stocks, the NASDAQ internals therefore are made up of data from those stocks so I still would consider them connected.

 

 

Good for you Tim.

We each have our point of view and it keeps life interesting.

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Hi Horace,

 

I have an interest in your comment about the Q's being disconnected from the underlying stocks. Could you elaborate? I agree with the comment, I have noticed that the Qs lead the movement, they moved before the stocks that make it up. Is that what you are seeing. Ofcourse some times they do not all the time

 

cheers

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Hi Horace,

 

I have an interest in your comment about the Q's being disconnected from the underlying stocks. Could you elaborate? I agree with the comment, I have noticed that the Qs lead the movement, they moved before the stocks that make it up. Is that what you are seeing. Of course some times they do not all the time

 

cheers

 

Yes If you dig into the internals of The Indexes and compare it to Stocks, the disconnect becomes evident.

That is why I only follow the Indexes on the assumption that sometimes they connect and sometimes they don't, but they stand alone 100% of the time.

 

Also, I try to follow the least information possible.

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"On the surface" the NYSE internals, $TICK, $advancers, $Decliners, UpVolume, DownVolume often do NOT sync perfectly with the ES. So there is a seeming disconnect between those internals and the ES. But, all the internals tell exactly why the ES does what it does if you learn how to "read the tea leaves". There is a complexity to reading the signals, and you have to know how all 3 sets of internals interact with each other. For example, sometimes the $TICK and the ES go out of sync with the $Advancers/$Decliners. But they will sync back up very soon, and the $Advancers/$Decliners usually win the battle.

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"On the surface" the NYSE internals, $TICK, $advancers, $Decliners, UpVolume, DownVolume often do NOT sync perfectly with the ES. So there is a seeming disconnect between those internals and the ES. But, all the internals tell exactly why the ES does what it does if you learn how to "read the tea leaves". There is a complexity to reading the signals, and you have to know how all 3 sets of internals interact with each other. For example, sometimes the $TICK and the ES go out of sync with the $Advancers/$Decliners. But they will sync back up very soon, and the $Advancers/$Decliners usually win the battle.

 

Yes I agree with you TW, however your use of the word "complexity" sends a cold shiver down my spine as simultaneously a voice alarm goes off in my head "PULL UP, PULL UP, PULL UP"

 

I rather feel that these complex mental gymnastics must be left to far more gladiatorial minds than mine when trading.

 

In fact my trading mind now is very much like a dog on a leash, in that it is allowed to probe slightly to the left, or right, or it may adventure ever so slightly ahead but it's days of glory, roaming through hoards of information with all the thrill and excitement of a Free Range Chicken have come to an end.

 

And so it is not that The Internals lie ahead of me offering all the academic thrill of a new crossword or game of Solitaire ... no not at all ... they in fact lie fondly remembered and used, but discarded like an empty water bottle in a Marathon.

I know where they are should I ever need to return.

Edited by horace

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I think the discunect can work for your benefit sometimes. I haven't look as close at the markets in the last 3months as I have been busey writing my first "blackbox" But I used the Qs volume with the Qs levels. After the crisis we had, the Qs have been getting sudden burst of volume at lows or highs of the days. at lows these bursts stopped the sincking and reversed the trends and on highs they usually broke the high but failed shortly after.

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TOS did not know anything about the Breadth Ratio. A thinkscript member offered a thinkscropt for  some indices but not the /NQ that I am trading. Is there  any source for the breadth Ratio?

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Scammers posing as home improvement contractors come door-to-door sale and target seniors, those who live alone, and victims of weather-related disasters are common targets Casting Call Scam - Scammers pose as agents or talent scouts looking for actors, singers, models, reality show contestants, etc., and use phony audition notices to fool aspiring performers into paying to try out for parts that don't exist. Foreign Currency Scam - Investments in foreign currency can sound like a great idea, and scammers frequently use real current events and news stories to make their pitches even more appealing. They advertise an easy investment with high return and low risk when you purchase Iraqi Dinar, Vietnamese Dong or, most recently, the Egyptian Pound. The plan is that, when those governments revalue their currencies, increasing their worth against the dollar, you just sell and cash in. Unlike previous hoaxes, you may even take possession of real currency. The problem is that they will be very difficult to sell, and it's extremely unlikely they will ever significantly increase in value. Scam Text Messages - It looks like a text alert from your bank, asking you to confirm information or 'reactivate your debit card' by following a link on your smart phone. But it is just a way to steal personal information Affordable Care Act Scams (ObamaCare) - Scammers love the Affordable Care Act ('Obamacare'), using it as a way to fool Americans into sharing their personal information.   For guideance about health insurance see our sister website, ConsumersHealthcareGuide.org. Other common scams:   Internet Auction Frauds Auction frauds (commonly called Ebay or PayPal scams, after the two largest venues) is a misrepresentation of a product advertised for sale through an Internet auction site or the failure to deliver products purchased through an Internet auction site.   Nigerian Advance Fee Frauds (AFF) These frauds take the form of an offer, via letter, e-mail or fax, to share a huge sum of money in return for using the recipient's bank account to transfer of the money out of the country.  The perpetrators will often then use the bank account details to empty their victim's bank account. Often, they convince the victim that money is needed up front, to pay fees or is needed to bribe officials.   "PASSIVE RESIDUAL INCOME" SCAMS Get rich scheme and scam websites - Make $$$ in your spare time! It so EASY once you get their free book or cd and learn their secrets! Sure... These websites are themselves scams; claiming to offer you a good deal, when at best, their products are worthless, they have no real secrets, and worse, some are identity thieves!   FreeCreditReport.com    What a scam this one is!  The name of the website is freecreditreport.com, but you'll only get a credit report when you sign up for their paid service.  And worst of all there IS a government mandated website where you CAN get a free credit report!  Find out more here!   Work At Home Scams Work-at-home and business opportunity scams are often advertised as paid work from home. After the would-be worker applies, they are asked for money up-front to pay for materials and, after paying, they hear nothing back. A variation of this is, people are asked to invest in a business that has little chance of success.   Matric and Multilevel Marketing and  Pyramid Schemes "MAKE MONEY NOW!" scream their websites!  And do it in your spare time!  Earn big bucks for almost no work.  If that isn't enough to tell you it is a scam, let us explain why it is. These schemes are promoted through websites offering expensive electronic gadgets as free gifts in return for spending about $25 on an inexpensive product, such as a mobile phone signal booster.  Consumers who buy the product then join a waiting list to receive their free gift. The person at the top of the list receives his/her gift only after a prescribed number of new members join up. The majority of those on the list will never receive the item. Pyramid schemes offer a return on a financial investment based on the number of new recruits to the scheme. Investors are misled about the likely returns. There are simply not enough people to support the scheme indefinitely.   Property Investment Scams Investors attend a free presentation, which aims to persuade them to hand over large amounts of money to enroll on a course promising to make them a successful property dealer, usually involving "no money down". Schemes can involve the offer of buying yet-to-be built properties at a discount.  Other variations include a buy-to-lease scheme where companies offer to source, renovate and manage properties, claiming good returns from rental income. The properties are generally near-derelict and the tenants non-existent.   900 Phone NumberScams Postal notification of a win in a sweepstake or a holiday offer in this scam include instructions to ring a premium rate number. This is generally an 900 toll number. Calls to the number incur significant charges, the recorded message is lengthy, and the prize often does not exist. It is a scam that has been around a long time, but it is still in use.   Advance Fee Brokers. Often these appear to be very professional operations with attractive websites and advertisements. However, it is illegal for a business to charge a fee prior to providing a loan. Typically, after wiring money to the scammer, the victim never receives the loan. These 'lenders' will use fake physical addresses or the addresses of real companies.   Credit Repair Services with Advance Fees. Consumers with bad credit ratings are particularly vulnerable to this scam. Everything a credit-repair operation offers an individual can do personally at little or no cost. Credit repair operations cannot ask for money in advance and they cannot automatically remove legitimate negative reports from your credit history.   Foreign Lottery Scams. Any lottery from a foreign country is illegal in the United States. Stating a person can win or is a winner already provides a strong incentive; however, people should never send money to obtain lottery money. Scammers using fictitious addresses will request you send 'fees and taxes' to them through a wire service, take the cash and never provide any winnings because there are no winners.   Office Supplies - Sale by Deceptive Telemarketing. This scam features fake invoices for office supplies being sent to a business, often for only a couple hundred dollars. This relatively low amount makes it easier for company personnel to quickly sign off and feel it is not worth their time to check the invoice's validity, which would be done if it was for a larger amount.   And please let us know about any suspicious calls or emails you receive.  We look for patterns so that we can alert the authorities and victims to new scams, before it is too late! For a comprehensive list of national and international agencies to report scams, see this page Dont forget to like and subscribe
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