Answers to a Stuffed EMail Inbox of Questions on the S&P Breadth Chart

I have received a lot of emails over the past several months about the S&P Breadth Chart and related questions on trading, that I will try to answer some of them here right before March Break.

(Lawrence: I wrote this article some time ago and due to some unusual circumstances, it is delayed til now that I get the chance to proof read and post it)

1. Anyone (including me) really trade the S&P Breadth Chart?

First, I do not take overnight positions myself lately because the overall economic/political environment is making the overnight risk more than what I consider acceptable (something to be written about in a separate article).

Second, yes we have clients reported that they use their modified models based on the concept to swing trade index related products like emini S&P (ES), SPY, etc. with success.

2. Can you explain in more details what trend sell mode and trend buy mode are, from the article S&P 500 Tick16?

Remember that Tick momentum is the measure of aggressiveness in the balance of power between bullish and bearish players. When one side of the game is dominating the tape, you know the opposite side will have to either strike back with power, or, retreat. Once we see retreat happening, it will not stop there. It is like a strong wave with ripple effects.

Thus, momentum in TICK16 trend would imply further momentum in the same direction within a short period of time (2 to 3 trading days). That provides a very useful short term bias to lean on for daytrading purpose. Again, something I should explain in another full length article.

3. Is there a way to utilize TICK16 for scalping?

The question I have seen most frequently among the emails. Answer to the question is Yes and No.

The obstacle – ever increasing volume making TICK16 not good enough for the opening 15 minutes duration.

The solutions – we have experimented with TICK32, TICK100, TICK1000, etc. we also tried to measure the net tick count using time limitation like 30 seconds, 1 minute, 90 seconds, etc. Some of these experiments are working very well and it looks like some of them can be long term solution to handling the ever increasing volume problem.

The alternatives – we have heard great success by users using TICK16 on overseas markets.

4. Why 3-day Advance Issues?

If possible, I would like to use 1/2 a week as the rule. At this point in time, I have not been able to create that, so I settled with 3 days. It is all about the structural price discovery process that I will explain in details in a separate eBook.

The idea is to measure the 1/2 cycle strength of the underlying components which in turn can give us the potential turning point a bit earlier than end of week data results.

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