Improving your Day Trading with the NYSE TICK

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I am analysing how the NYSE TICK indicator can be used to improve certain day trading strategies. The NYSE TICK measures all equities on the NYSE and whether the last trade occured on an uptick or downtick. Its a good measure of the overall stock market action and what I am hoping to find is a usecase as a filter for day trades.

I will use the SPY ETF as a proxy for the ES (thats the S&P500 futures). I do this for multiple reasons. First, Im always concerned about over optimization and using a releated market limits that to a small extend. Second, the NYSE TICK measures the Equity markets which are in a different timezone than the futures in Chicago and the SPY trades in NY too, so that makes it easier (a software thing).

Symbol: SPY on 5-min
Symbol 2: NYSE TICK on 5 min (JTYT.Z on Iqfeed)
Symbol 3: NYSE TICK on daily time frame
Period: 01.08.2015 to 01.08.2017 leaving the rest of data for Out-of-Sample testing
Capital: 100’000$
Amount per trade: 100’000$
No commission or Slippage

Benchmark Strategy Rules:

Since my daytrading methods for equity index futures are mainly mean reversion (counter trend or fading moves) I will create a similar dummy strategy to act as a benchmark and to see how it could be improved with the TICK.

If the Low is lower than the lowest low of the last 5 bars then BUY SPY
Profit Target 100$
Stop Loss 100$
Maximum time in trade = 2 hours
Close all open trades at the end of the regular session
The benchmark strategy yields surprising positive results but it is untradeable as the profit per trade is only 3.42$ and there are no slippage and commission considerations. However this strategy was not intended to be traded but rather serve as a benchmark which mimmicks my personal trading of Index futures to a certain extend.

Testing different patterns with the NYSE TICK

Buying the SPY on a pullback if the TICK made a new highest high or lowest low
What if i only buy once my benchmark strategy condition is true AND the TICK makes an x bar highest high or lowest low?

Variation 7 shows the Benchmark strategy. Switch (last column) shows that TICK made a highest high (if Switch = 1) or lowest low (if Switch = 2). So for example row 1 shows the Benchmark strategy (buy SPY if low is lower than the last 5 bars) only when the TICK made the highest High of the last 28 bars. This only happend 28 times which is too few to be relevant.
What can be seen that it seems beneficial to only buy the SPY when the TICK made a short term (not excessive) low of 4-10 bars (Rows 4-6 all have higher Avg. Trade, ROA and Profit Factors although none are significantly better). What is also obvious is that it is not a good idea to buy the SPY when the TICK made some significant new lows i.e. if the TICK made a new lowest low for the previous 28-57 bars or more (not shown here).
Buying when the TICK made significant new highs seems better but there are only a few trades which make results more unreliable. Also consider this is a pure optimization on an in-sample basis and is likely significantly curve fitted. If these findings have any merit will have to be verified on out-of-sample (unseen) data.

Possible (in-sample) Conclusion: Do not buy the SPY when the NYSE TICK is very bearish, making significant new lows. Only buy if the TICK made a short term low (2-10 5min bars) or if the TICK made a significant High (>25 5min bars High).

Buying the SPY on a pullback if the TICK CLOSED on a new highest/lowest CLOSE
That test didnt bring any more relevant results and in my opinion that makes sense. The TICK measures every stock in the NYSE and if its currently up ticking or down ticking and is calculated at a certain time interval (every 6 seconds on the NYSE but certain data vendors might have different intervals). I wouldnt see why it mattered where it “closed” that 6 seconds and highs and lows make a lot more sense to me.

Buying the SPY on a pullback if the high of the TICK is above/below a level
Lets test the benchmark strategy and its performance if the High of TICK is above a certain level to buy and also if the low is below a certain level to buy.
Row 1 shows if you buy the SPY on a pullback when the High of the TICK is above +100. Row 2 the TICK would be above +200 etc. And from Row 16 it is the counter trend entry, so in order to buy the low of the TICK would need to be below -100…
What is evident here is that it is beneficial to buy the SPY if the high of the TICK is above a certain level. If the low of the TICK is below a certain threshold, it clearly underperforms.
Quite an improvement if the SPY is bought when the TICK High is above 100.

Buying the SPY on a pullback if the TICK makes a new intraday high 
This could be classified as a divergence where the SPY makes a 5 bar low while the TICK makes a new intraday high.
The profit factor of 1.33 is the highest from all variations so far (if at least 100 trades were generated) and also the Avg. Trade with >14$ is the highest. However this only occured on about 200 trades.

Buying the SPY if the high of TICK trades above/below the Bollinger Band
No interesting results. None improved the benchmark model

Summary from in-sample tests:
It seems the TICK has a usecase to improve day trading models for Equity Index instruments. The main findings so far were:

  1. it is better to buy the SPY on a pullback if the TICK makes a short-term low of 4-10 5min bars
  2. do not Buy the SPY if the TICK makes a significant low >27 bars
  3. buy the SPY if the TICK made a significant new high > 25 bars
  4. buy the SPY if the high of TICK is > +100 or more
  5. do not buy the SPY if the low of TICK is below -100 or less
  6. buy the SPY if the TICK makes a new intraday high

Lets now check if these findings hold up also in Out-of-sample tests. I am now changing to unseen data from 01.08.2017 – 31.01.2019 for these models.

The Benchmark Strategy Return is:
$8376 Profit
Return on Account 134% (that is basically the Return vs. Drawdown)
Profit Factor 1.04
Avg. Trade 2.16$
Trades 3876

Out-of-Sample verification of above findings:

  1. Is it better to buy the SPY on a pullback if the TICK makes a short-term low of 4-10 (5min) bars:
    The pattern holds up as all variations have a higher ROA, higher Avg. Trade and better Profit Fator.
  2. Do not Buy the SPY if the TICK makes a significant low >27 bar:
    This behavior also holds up as all ROA, Profit Factor and Avg. Trade are worse than the Benchmark Strategy.
  3. Buy the SPY if the TICK made a significant new high > 25 bars
    This definitely is also confirmed on an out-of-sample basis as the ROA is triple that of the Benchmark with a high Profit Factor, Avg Trade that is 12 times higher and also a much higher win rate.
  4. Buy the SPY if the high of TICK is > +100 or more
    This behaviour also holds up however the value that the high of TICK has to reach needs to be higher. From the results below it can be seen that the higher the TICK Reading the better the performance figures. A value of 3 in the second column from the right means the high of TICK needs to be above 300 (4=400,…). Readings of 100 and 200 are not yet good enough but from 300 on all factors are better.
  5. Do not buy the SPY if the low of TICK is below -100 or less
    This behavior also keeps repeating as the lower the Low of the TICK gets the worse it is to buy the SPY.
  6. Buy the SPY if the TICK makes a new intraday high
    this seems to be the only varation where one can not clearly say it held up. Although the avg. Trade of 2.78$ is better than the benchmark with 2.16$ and the Profit Factor of 1.06 is also slightly better, the ROA with 26.79 is worse.$

Overall conclusion:
Almost all of the identified patterns improved the benchmark strategy, sometimes significantly. What was surprising was that 5 of 6 patterns clearly held up out-of-sample and the 6th was kind of a mixed bag. The TICK seems to be a good filter for taking daytrades in the SPY and should perform similarly in the e-mini S&P500 so it definitely seems worth it to keep an eye on it when trading Index products on a day trade time frame.

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