Uptick
A trade executed at a price higher than the previous trade.
An uptick is a trade at a price above the previous transaction. Modified uptick rules restrict short selling during sharp declines, in markets where they apply.
An uptick occurs when a financial instrument trades at a price above its most recent transaction price. The uptick rule in some equity markets restricts short selling to uptick prices only, preventing traders from piling into shorts during a freefall. While the original US uptick rule was repealed in 2007, a modified version (alternative uptick rule) activates when a stock drops more than 10% in a single day.
How It Works
- Every trade is compared against the previous trade. Higher price = uptick, lower = downtick.
- The original uptick rule required short sales only on an uptick or zero-plus tick
- The alternative uptick rule triggers a circuit breaker when a stock falls 10%+ from prior close
- Once triggered, short selling is only allowed above the current best bid for the rest of the day and the next
Trading Tips
If you short-sell equities, be aware of the alternative uptick rule. It can delay short order fills.
Uptick/downtick data can serve as a sentiment indicator. More upticks = net buying pressure.
In forex, there is no uptick rule. You can go short at any time without restriction.
Uptick Example
Say a stock falls all morning, prints one trade a cent above the last, then keeps falling. That single uptick barely interrupts the slide, but under short-sale rules it briefly reopens the door for new shorts.
How Traders Use Uptick
Ignore single upticks in a trend. They are noise with a name. Short sellers watch them only where rules force it. Price needs sequences, not ticks, to signal anything.
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