Market internals show you what is happening beneath the surface of the major indices. While SPY might be flat, market internals can reveal whether the majority of stocks are actually advancing or declining. This information helps day traders understand the true health of the market and make better trading decisions.
What Are Market Internals?
Market internals are breadth indicators that measure the overall participation and direction of the market. Instead of looking at a single index or stock, internals aggregate data across hundreds or thousands of stocks to show the broader picture.
Why it matters: A rally that is narrow (only a few stocks participating) is weaker than one with broad participation. Market internals help you identify whether the market is truly strong or if the index movement is being driven by just a handful of large-cap names.
Essential Market Internals
1. NYSE TICK ($TICK)
The TICK measures the number of NYSE stocks ticking up minus those ticking down at any given moment. It is the most popular real-time internal for day traders.
- Positive TICK: More stocks are ticking up than down
- Negative TICK: More stocks are ticking down than up
- Zero line: Equal buying and selling pressure
TICK Reading Guide
- +800 or higher: Strong buying pressure, bullish extreme
- +400 to +800: Moderate buying pressure
- -400 to +400: Neutral, balanced market
- -400 to -800: Moderate selling pressure
- -800 or lower: Strong selling pressure, bearish extreme
Extreme readings (+1000 or -1000) often mark short-term reversal points.
2. Advance/Decline Line ($ADD)
The ADD shows the cumulative difference between advancing and declining stocks throughout the day. Unlike TICK which is a snapshot, ADD accumulates over time.
- Rising ADD: Broad participation in the rally
- Falling ADD: Broad participation in the selloff
- Divergence: When ADD moves opposite to price, it signals potential reversal
3. Up/Down Volume ($VOLD)
VOLD compares the volume of stocks that are up versus down for the day. This shows where the real money is flowing.
- Positive VOLD: More volume in advancing stocks
- Negative VOLD: More volume in declining stocks
- Volume confirms price: Strong moves should have confirming volume
4. New Highs/New Lows ($NYHL)
This internal tracks stocks making new 52-week highs versus new 52-week lows. It indicates market momentum and trend strength.
- Bull market: New highs consistently exceed new lows
- Bear market: New lows consistently exceed new highs
- Warning sign: Fewer new highs during market rallies
How to Use Market Internals for Day Trading
1. Confirming Trade Direction
Before taking a trade, check if market internals support your direction:
Long Trade Confirmation
You see a bullish setup on AAPL. Check internals:
- TICK: +500 and trending higher - Bullish confirmation
- ADD: Rising steadily - Broad participation
- VOLD: Positive ratio increasing - Money flowing into stocks
All internals support a long trade. Higher probability setup.
Short Trade Warning
You want to short a stock, but internals show:
- TICK: Mostly positive, bouncing off +200
- ADD: Making higher highs
- VOLD: Buyers in control
Internals do not support shorting. Consider waiting for better conditions.
2. Identifying Exhaustion
Extreme internal readings often signal short-term exhaustion:
- TICK above +1000: Buying exhaustion, potential short-term top
- TICK below -1000: Selling exhaustion, potential short-term bottom
- Divergence: Price makes new high but internals do not = weakness
3. Finding Reversal Opportunities
Use internals to spot potential reversals:
- TICK hits extreme low (-800 or worse) while price approaches support
- ADD starts to flatten or turn while index still declining
- Volume shifts from sellers to buyers
4. Filtering Out Low-Probability Trades
Some of the best uses of internals is knowing when NOT to trade:
- Do not buy when TICK is consistently negative
- Do not short when ADD is making new highs
- Avoid trading against strong internal trends
TICK Trading Strategies
TICK Extreme Strategy
Trade reversals at extreme TICK readings:
- Wait for TICK to reach +1000 or -1000
- Look for a candlestick reversal pattern on the index or stock
- Enter in the direction of the expected reversal
- Set stop beyond the extreme candle
TICK Divergence Strategy
Look for divergences between price and TICK:
- Price makes a new high, but TICK high is lower than previous
- This negative divergence signals weakening momentum
- Wait for price confirmation before shorting
- Works best at key resistance levels
Important: Do not trade internals in isolation. They are best used as a confirmation tool alongside chart patterns, support/resistance, and price action. Internals tell you the character of the market; your chart tells you where to trade.
Setting Up Your Internals Screen
Here is a recommended layout for monitoring market internals:
- Main chart: The index or stock you are trading
- TICK chart: 1-minute chart with zero line marked
- ADD chart: 1-minute cumulative chart
- Optional: VOLD ratio or put/call ratio
Common Internals Mistakes
- Using internals for individual stock trades without considering sector: A tech stock may not follow NYSE internals if tech is diverging
- Overtrading extreme readings: Not every extreme leads to reversal - wait for confirmation
- Ignoring context: A -800 TICK in a strong uptrend is different than in a downtrend
- Too many internals: Focus on 2-3 that you understand well
- Expecting immediate moves: Internals show conditions, not exact timing
Advanced Internal Analysis
Cumulative TICK
Adding up TICK readings throughout the day creates a cumulative TICK line. This shows the overall direction bias and can reveal underlying strength or weakness not visible in price.
Sector-Specific Internals
If trading specific sectors, consider using sector-specific advance/decline data rather than broad NYSE internals.
VIX as an Internal
The VIX (volatility index) can also be used as an internal. Rising VIX with falling prices confirms fear, while falling VIX with rising prices confirms complacency.
Improve Your Trading Decisions
Pro Trader Dashboard helps you track your performance across different market conditions. See how your win rate changes when trading with or against market internals and refine your approach.
Summary
Market internals like TICK, ADD, and VOLD provide crucial information about market breadth and participation that individual charts cannot show. By incorporating internals into your analysis, you can better confirm trade direction, identify exhaustion points, and filter out low-probability trades. Start with TICK as your primary internal, learn to read its rhythms, and gradually add other internals as you become more comfortable.
Ready to learn more? Check out our guide on intraday sector rotation or discover order flow analysis techniques.