What is an Uptick?
Uptick defines the price increase of a financial instrument since the transaction preceding it. An uptick occurs when the price of a commodity is increasing with respect to the last tick or exchange. The uptick is sometimes called a plus tick, too.
How Does an Uptick Work?
If a new trading price for security (even by one paisa) is higher than the previous one, the security is on an uptick. Stock XYZ, for example, trades for Rs 10.00 per share. If Stock XYZ is traded every time it's selling at Rs 10.01, it's got an uptick.
Types of Uptick
There are several terms that have the word uptick in it. They include zero upticks, which applies to a transaction that was executed at the same price as the trade that immediately preceded it, but at a price higher than the previous transaction; uptick volume, which means the number of shares traded while a stock price is increasing; and the uptick rule.
Importance of an Uptick
The importance of a financial-market uptick is essentially connected to the uptick rule. Originally in place from 1938 to 2007, this directive dictated that a short sale can only be made on an uptick. It was implemented to avoid piling too much pressure from short sellers on a falling stock price.
Short sellers will hammer the stock down endlessly in the absence of an uptick rule, as they're not forced to wait for an uptick to sell it short. Such concerted sales can attract more bears and scare buyers away, creating an imbalance that could lead to a sharp decline in a shaky stock.
