Counting ticks as a volatility gauge

[Fairman]

Counting ticks as a volatility gauge

Volatility is usually measured with range or standard deviation. A simpler and faster signal is the number of ticks arriving per second.

When the rate climbs, something is happening. Orders are being traded, quotes are changing, and liquidity providers are repricing. When it falls, the market is quiet.

For a scalper, tick rate has two advantages. It reacts instantly, with no waiting for a bar to complete. And it picks up bursts of activity that do not yet show in the range, such as the first seconds before a move.

Several simple indicators exist for it, and custom ones are easy to build. Plotting the rate beneath the chart over a week shows clear daily patterns, with spikes at the opens and releases.

One caution: tick rate depends on the broker's feed, which may throttle updates. Two brokers can show very different counts for the same market.

A cheap experiment is plotting tick count per ten seconds against the true range for the same intervals. If the two track each other closely, the count is a decent stand-in. Where they diverge, the explanation is usually a spread change or a feed hiccup.

Has tick rate ever warned of a move before price did?