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Trade Like Mark D. Cook: The Cook Cumulative Tick Indicator at Trader’s Narrative





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If you’ve somehow managed to not learn about Mark D. Cook by now: he is a ‘Trading Wizard’ featured in Schwager’s series of books, a legendary futures trader and the winner of the 1992 U.S. Investment Championship (with a 563.8% return). His most famous contribution to trading and technical analysis is his self named, Cook Cumulative Tick Indicator.

This indicator is, as the name suggests, simply a cumulative count of tick throughout the trading day. The exact recipe is only known to Mark D. Cook but from what he has publicly divulged, we can try and estimate the Cumulative Tick Indicator to a pretty good degree.

First, separate the noise from the signal by ignoring any tick readings within the +/-400 range. We then record and aggregate those readings outside this range at a fixed time interval. We don’t know exactly what interval Mark uses so just pick a time interval: minute, hour, day, etc. The important thing is to be consistent. That’s it! Now you have the super secret Mark D. Cook, Cook Cumulative Tick Indicator. So what do you do with it? Watch the 95th and 5th percentile. If the Cumulative Tick Indicator is above the 95th percentile, sell; if below 5th percentile, buy.

Remember, this is a counter trend strategy so the more extreme the tick, the more vicious the snapback. As with all counter trend strategies, mind your protective stop loss! A trend can persist much longer than you can remain solvent. Never try and be a hero by playing chicken with the market.

But what if you don’t have access to such tick data? You can estimate the cumulative tick by calculating a simple moving average. This won’t be the same as Cook’s Cumulative Indicator, but it is still helpful:

mark cook cumulative tick indicator nasdaq tick.png

The cool thing about this indicator is that it is quite accurate in pinpointing tops as well as bottoms (see how an oversold extreme in tick flagged the May 2006 bottom). After all, it is an almost real time snapshot of the market’s pulse, racing from greed to fear and back again.

Lets take a look a the recent action in this approximation of the Cumulative Cook Indicator. In early March 2007 it hit an extreme oversold level (-300). If you had any shorts or wanted to press the short side, this was telling you to both lighten up and to think about going long instead.

Then within just a few weeks in mid-March 2007 it reversed and went as high as +500! If you notice, it hit the overbought threshold (+400) when the Nasdaq reached 2450 and stalled. If you were long, it was telling you to lighten up and think about shorting. Remember that this indicator is quite hyper. Either adapt to such short term setups or use a longer moving average to get a more long-term perspective.

Mark Cook uses the NYSE tick, but personally, I think that the NYSE is so polluted with non-common share securities that the tick and any other indicator based on NYSE data has way too much noise to signal ratio to be useful. Thankfully we have the NASDAQ tick which is the same thing really - free of the ‘noise’ from bond funds, munis, preferreds, etc.

Cook has a few more tricks up his sleeve - would he be a Trading Wizard if he didn’t? There is the conjunction trade which relies on tick but is a bit different than the Cumulative Tick Indicator. First, you want a tick reading below -400 (the magical threshold). Second, you want the Dow Jones tick below -22. The ‘conjunction’ of these two gives you the signal (for the spoos). You give it a window of 21 minutes to work.

There are 3 possible outcomes:

  • you run out of time (price meanders) and you exit
  • you take a 3 pt profit
  • you take a 6 pt stop loss

I’m not sure if it’s a great idea to have a 1:2 profit to stop loss ratio but I assume that Cook relies on the high probability nature of this setup to give him positive expectancy.

Finally, Mark D. Cook has a trading setup he calls a ‘tick buy’. This is the simplest one! The signal for a buy/sell is when the NYSE tick gets to -/+1000. That’s it. The thinking is, of course that you buy because market will snap back from such an oversold level. The wrinkle is that you watch and buy the index that cooperates or leads the most. Mutatis mutandis for an extreme overbought tick. So if the NDX is weak, and we get a sell signal (+1000 tick) we then sell NDX (not SPX or OEX which may be stronger).

If you’re interested to know What Mark thinks about the current market, you can read his most recent commentary here. But be aware that Mark tends to have a bias towards the bearish side ;)

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16 Responses to “Trade Like Mark D. Cook: The Cook Cumulative Tick Indicator”  

  1. 1 The Market Speculator

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    You are definately correct about Mark being bearish! His commentary reflects a negative view of the markets since November ‘05. It would be interesting to see if his trades are in line with this bearish view.

    I remember reading Cook in the Wizards book, but haven’t thought about his trading method in years. Looks like I’ll have to spend the weekend doing some TICK research . . .

    PS

  2. 2 Babak

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    MS,
    I’m not sure if Cook has been bearish all the way since back then. Even if he has, I think it would be misleading to think that this means he has been shorting the market. As you can see from his trading style, he’s an extremely short term trader so it is entirely possible for him to actually have made money by quickly going in and out at the appropriate time. I wonder if any one here subscribes to his website? I’d love to know what his actual calls have been.

  3. 3 bond killer

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    I wouldn’t give you a nickel for cooks crap… He is a whore, who takes peoples money, and gives them BS,,, If you don’t believe me, ask some of the people who used to, but no longer work for him…

  4. 4 Babak

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    bond killer,
    them words be fightin’ words pardner.
    Got any specifics?

  5. 5 JTrader

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    Mark D Cook is whore and does take peoples money. Never pay for his trainings in advance. If you do want to waste your time with him pay at the training in his old beat up house. Bearish view….absolutley. Read his last article on his wesite. Market will sell off 29%. Yes the market corrected 10% after his statement but where is the bear market and the 29% sell off. He must not make to much money trading as he has to take from others. Beating on Youth. WOW. There are better traders on Wall st that are half his age. One way to make yourself feel good is to put others down.

    JT

  6. 6 LW

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    Going to a free seminar of his tonight in Sydney, and judging from JTrader’s response it looks like Cook called the bear market correctly. Guess his call wasn’t too popular with the bulls, but credit where it’s due if JTrade is to be believed. Cook also trades on 3 different time scales, so obviously he wasn’t entirely bearish.

    Anyhow hindsight is a beautiful thing, no?

    Free seminar might be well worth it then.

  7. 7 Dee

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    Gday LW,

    How did you find it? I was there and you could tell the numbers that showed up were for Mark. Poor CMC ! Anyway, was a pretty light session with some general trader mindsets to have, nothing as technical as one would of hoped, but i didnt go thinking we would learn anything solid. (But hey, at least it has me searching for Mark Cook Indidcator on google!).

  8. 8 Dewey, Cheatum and How

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    Hey Babak,, I see you can’t make any money screwing people in the US so you gotta go to Austalia,,, Everybody,,, just in case you did’t know,,, Babak IS MARK COOK,,, I see hi bullcrap all over forums… Hey how’s the sexual harassment going,,, still hittin on the female attendees?? I like your interview down under without your rug…. It makes you look more honest……NOT..

  9. 9 Babak

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    Drat! my carefully conceived master plan has been foiled!
    (but seriously, get back on your meds)

  10. 10 Larry Williams

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    Hey as long as you are all beating up Mark Cook,,, come on over to my website and I’ll show you how to really trade,, Everybody knows this guy is a bozo!! And if you bring your wife, you won’t have to worry about me hittin’ on her. (But your daughter is another story)

  11. 11 Babak

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    Larry, fine, just as long as you keep any tax advice to yourself ;-)

  12. 12 S L Gray

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    Larry, I know everything you could possibly ever want to know (as long as you have a strong stomach) about Mark first hand. You should hear what he says about you!

  13. 13 Big Dog

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    If you really want to waiste your money, take his seminar

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