A “down tick” refers to a transaction that is executed at a price lower than the preceding transaction involving the same security.
In other words, a down tick occurs when a financial instrument such as a stock, bond, or commodity is sold at a lower price than the previous trade.
The concept of a “tick” is used in financial markets to measure the minimum upward or downward movement in the price of a security.
A “down tick” represents a decrease in price, while an “up tick” represents an increase.
The importance of down ticks and up ticks has decreased somewhat with the advent of decimalization in financial markets. However, they remain important in the context of certain rules and strategies.
For instance, the U.S. Securities and Exchange Commission’s (SEC) “uptick rule,” which was in effect from 1938 to 2007, stated that short selling a stock was only allowed on an uptick or zero plus tick, in order to prevent “bear raids” where traders might drive down the price of a stock by short selling large volumes of it.
For day traders and high-frequency traders, understanding and tracking tick movement can be a critical part of their trading strategy as they attempt to capitalize on rapid, small price movements throughout the trading day.