A proficient illustration came upward inward a query I was asked during NYSE TICK. The interviewer asked if high in addition to depression levels could survive interpreted every bit overbought in addition to oversold levels that could survive faded. I cautioned against this, noting that, coming out of an overbought or oversold market, really depression or really high TICK readings are oftentimes suggestive of a alter inward the tide of short-term persuasion in addition to tin Pb to downside or upside momentum.
Little did I know at the fourth dimension that this is precisely what would plow over off inward the wake of the Fed minutes release. Up to that point, nosotros saw a feeble bounce from an oversold status in addition to it appeared probable that nosotros could eventually exam the early on August lows inward the ES contract. With the loose of the dovish minutes, however, buying exploded in addition to nosotros saw NYSE TICK levels multiple touchstone deviations higher upward average. Indeed, multiple one-minute readings exceeded +1000. Instead of existence a grade to fade, the high readings suggested that solely novel participants were jumping aboard the market, creating upside momentum that carried through to the halt of the day.
Static reasoning tells us to fade the "overbought" TICK readings. Fluid reasoning recognizes the context inward which the extreme readings are occurring: this is a short-term game-changer. The might to alter gears in addition to recognize novel data in addition to fresh upside participation inward the marketplace is cardinal to trading success. Success is non in addition to then much a thing of making correct decisions, every bit making decisions the correct way: fluidly, placing electrical flow observations into broader context.
Further Reading: Honing Your Trading Process
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