03-12-2011, 07:59 PM
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Senior Member
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Good TICK, Bad TICK, No TICK
Good TICK, Bad TICK, No TICK
Many times during the trading day a stock will develop a very large tail on a candlestick chart patterns either on an intraday or daily basis. A tail is also referred to as a "wick" in candlestick charting. This "tail" or "wick" develops when a stock trades in a price range, moves to one extreme end of the range, and then quickly back to a more normal price level. Sometimes these tails disappear after a period of time. The common question for traders then becomes: Did the stock really trade there? Will such a move stop me out? Could I get filled that far away from where the "market price" was only seconds before? Is this an indication of future price movement?
The "market price" is defined by the inside bid price and the inside offer price of the stock. When a trade is executed outside of this area we consider it to be outside of the current "market". There are three reasons a trade can execute outside of the market.
First any trader can execute a trade outside the market by a few pennies by simply using an Electronic Communication Network (ECN) order route that only trades with itself. These are real trades however and they usually occur only slightly outside of the real market as observed by the technical analysis indicators. They happen only because of the internal rules of the few remaining ECN's that only allow trades within their own system. They give no indication of future price movement.
The second occurrence happens when a mistake is made in the entering or recording of a trade that displays on the ticker and therefore in the candlestick chart. It is usually easy to spot because it is often far outside the market (often in exact one or two dollar amounts) and has very small volume associated with it, such as one typical trade size. This is literally a mistake and gives no indication of future price movement.
The third occurrence is known as a "block trade". This can be distinguished from the "mistake" above because it is usually not as far out of the market and will often happen on large volume. This occurs when Market Makers or Specialists get together and complete a transaction outside of the level two screen. This is perfectly fair, and there is no issue regarding the validity of the trade. Many traders feel that block trades can be used as a predictor of future price movement. However this is not true. These are usually at the end of a large purchase or sale for a Market Maker or Specialist and like the others, gives no indication of future price movements.
Using proper candlestick technical analysis, none of these occurrences are a valid reason to trigger an entry or an exit to a stock. Many day traders stock trading strategies include using automatic stops to get out of a position. Be aware that some or all of the above events may trigger an automatic stop.
How does a day trader differentiate between a good tick, bad tick or no tick? The answer is: Take a day trading education course, ask questions and follow up with instructors. Learn how to avoid being "shaken out" of a trade from an experienced professional.
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