Broad Market Indicators for Day Trading

Day trading on any timeframe chart requires the knowledge of how the general market is behaving.  You want to make sure that all boats are sailing in the same direction to give your trade better odds of working.  To do this, a trader should keep an eye on a few key indicators; the TICK Index, TRIN index (or the ARMS Index), the Spread between the S&P Futures & Cash markets, and major support and resistance levels (including Fibonacci levels and pivot points).  Day traders have about 1 hour to profit during the “power hour”, starting at the open.  For this reason, you want to look at leading indicators rather than ones which are lagging.  We have to make quick decisions as to the future health of the market and these indicators will help us do that. 

TICK Index

The TICK Index is a measurement of the short term bias of the overall market at any one point in time.  It measures the difference between the number of stocks on the NYSE that have registered an uptick versus the number of stocks that have registered a downtick at any single point in time.  While a trader cannot bother themselves with the noise of every tick index reading, it is important to keep an eye on extremes in the market, especially 1000 and -1000 which indicate an overbought or oversold condition.

Trin (ARMS Index)

The ARMS index, aka. TRIN index, measures the breadth of the market in terms of volume and advancing issues.  Essentially, it gauges whether the market is moving higher with volume support.  Just like the TICK Index, there can be a lot of noise; however, keep an eye out for closing TRIN readings near 2 and .5.  These can signal a change in trend on the following days open.  On intraday charts, you want to see the TRIN and the price moving in opposite directions.  When that stops happening, it is time to look for a change in trend.

Premium on the S&P Futures

Next, we will discuss the spread between the S&P cash and the S&P futures contract.  This spread is often referred to as the premium or discount.  It is said that the futures market leads the cash market and that an expansion in this spread indicates that the cash market should move higher while a contraction indicates that the market should move lower.

Support and Resistance Levels

Bigger support and resistance levels of the overall market should also be understood when you are day trading.  Remember, we want all boats to sail in the same direction.  Therefore, it is important to identify the next trading days pivot points and Fibonacci retracement level.  These will provide some clues as to strong support or resistance within the market.

Pivot points are very rarely talked about but used by the majority of traders in the futures trading pits.  The most common method of calculating pivot points is known as the five point method and these need to be recalculated every day to provide intra-day support and resistance levels.

The calculations of these pivots use the previous days data and are as follows:

Resistance 1 = (Main Pivot * 2) – Low
Resistance 2 = Main Pivot + Resistance 1 – Support 2
Main Pivot =  (Close + High + Low) / 3
Support 1 = (Main Pivot * 2) – High
Support 2 = Main Pivot – Resistance 1 + Support 2