Technical analysis of stocks, futures, forex etc. starts from understanding the TICK. It is the basic starting point and one has to clearly understand the implications of it. We will explain this in terms of share prices.
A TICK looks this.
The highest point of the line is the day’s highest price, the lowest point is the day’s lowest price, the left horizontal line is the opening price for the day, and the right horizontal line is the day’s close price. For example, on 22.3.2011, for NIFTY, the High was 5428, the Low was 5376, the Open was 5391, and the Close was 5414. The TICK thus has 4 dimensions, and these keep changing everyday. Some of the shapes that it can take are
In A, the high, open and the close are the same. In B, the low, open and close are the same. In C, the open is near the low and the high is near the high. In D, the open is equal to the low and the close is equal to the high. In E, the open is equal to the high and the close is equal to the low. In F, the open and close are the same.
One can think of infinite number of combinations and each has a different meaning and implication with respect to daily price behavior. One can draw their own lessons from the shape of the TICK at the end of the day and also regarding daily movement in TICKS. For example, D is bullish as it says that the market closed at a high. E is bearish as the market closed at a low from where it opened. There was loss of interest in the market during the day. A shows stagnant interest as the market only went down during the day and recovered ground. F shows consolidation and rethinking as the market closed at the open and tasted high and low. It also can reflect uncertainty.
The length of the TICK shows intraday volatility. If the TICK is long as in K, the market was volatile. If the TICK is short like L, the market was not volatile. It was relatively stagnant. This means that there was not much buying and selling interest during the day.
On two successive days if we have the TICKs like M, then this means that the market has turned bullish. This is because the lengths of the ticks has remained the same, today’s open is higher than yesterday’s open, today’s close is higher than yesterday’s close, today’s low is higher than yesterday’s low and today’s high is higher than yesterday’s high.
Two successive TICKs like N shows declining interest in the market.
For a concrete live example let us look at the chart of Pantaloons Retail Ltd.
From 11.3.2011 to 16.3.2011, the closes were lower than the open indicating that prices would fall further. On the 18th, volatility increased as the range was higher and the high was higher than the previous days high. Some interest can be observed. On the 22nd the trend got reversed and the close became higher than the low. This signaled a reversal, and on the 23rd. the stock saw prices going up. So close observation of ticks can provide some insight into future price movement, for 1 or 2 days.
For Nifty, from the close being higher than the open on 16.3.2011, on the 17th the close became lower than the open. This indicated a reversal and this is what happened. The Nifty fell on the 18th and also on the 21st. On the 22nd, the close became higher than the open indicating again a reversal. The Nifty rose on the 23rd.
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