Subject: Trading - Tick, Up Tick, and Down Tick

Last-Revised: 26 Jan 2008
Contributed-By: Chris Lott (contact me)

The term "tick" refers to a change in a stock's price from one trade to the next (but see below for more). Really what's going on is that a comparison is made between trades reported on the ticker. If the later trade is at a higher price than the earlier trade, that trade is known as an "uptick" trade because the price went up. If the later trade is at a lower price than the earlier trade, that trade is known as a "downtick" trade because the price went down.

On a traditional stock exchange like the NYSE, there is a single specialist for each stock, so this measure can be calculated based on the trade data. On the NASDAQ, the tick measure is calculated based on the trades reported (which might well be out of order or delayed).

Something called the "tick indicator" is a market indicator that tries to gauge how many stocks are moving up or down in price. The tick indicator is computed based on the last trade in each stock.

The tick measure was used to regulate the markets until 2007. The Securities Exchange Act of 1934 defined Rule 10a-1, which stated that shorting a stock could only be executed on an uptick. For what it's worth, on the NASDAQ, the restriction on short sales was not done based on the tick for trades but rather based on the change in the BID on a stock; i.e., from the stream of bid data. All Market Makers and ECN's who trade on NASDAQ have their change in bids reported one at a time. For example, if a NASDAQ issue trades at 100 then next trades at 101 but at the same time the bid goes from 101 to 100 15/16, that would cause a down tick for the purpose of regulating short sales. The last trade was higher than the trade before (so the traditional tick indicator is positive), but a drop in the bid from 101 to 100 15/16 results in a down tick. None of this matters anymore, because the short-on-uptick rule was repealed by the SEC in July of 2007.

The Wall Street Journal publishes a short tick indicator table daily with the UP/DOWN cumulative ticks (tick-volume) for selected (i.e., leading) stocks. Here is a link to their "Money Flows" page:
http://online.wsj.com/mdc/public/page/2_3022-mfgppl-moneyflow.html

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