how an uptick works
since 2001 the minimum tick size for stocks trading above 1 is 1 cent that means that a stock that goes from 9 to at least 9 01 would be considered to be on an uptick conversely if it goes from 9 to 8 99 it would be on a downtick 1a stock can only experience an uptick if enough investors are willing to step in and buy it consider a stock that is trading at 9 9 01 if the prevailing sentiment for the stock is bearish sellers will have little hesitation in hitting the bid at 9 rather than holding out for a higher price likewise potential buyers will be content to wait for a lower price given the bearish sentiment and may lower their bid for the stock to say 8 95 if the stock s sellers significantly outnumber buyers this lower bid will likely be snapped up by them on the cme exchanges tick sizes are set by the exchange and vary by contract instrument 4in this manner the stock may trade down to 8 80 for example without an uptick at this point however the selling pressure may have eased up because the remaining sellers are willing to wait while buyers who think the stock is cheap may increase their bid to 8 81 if a transaction occurs at 8 81 it would be considered an uptick since the previous transaction was at 8 80 types of upticksthere are several terms that contain the word uptick they include zero upticks which refers to a transaction executed at the same price as the trade immediately preceding it but at a price higher than the transaction before that uptick volume meaning the number of shares traded while a stock price is rising and the uptick rule special considerationsthe significance of an uptick in financial markets is largely related to the uptick rule this directive originally in place from 1938 to 2007 dictated that a short sale could only be made on an uptick it was introduced to prevent short sellers from piling too much pressure on a falling stock price 2the repeal of the u s uptick rule in july 2007 has been highlighted by many market experts as a contributing factor in the surge in volatility and the unprecedented bear market of 2008 09 5in the absence of an uptick rule short sellers can hammer the stock down relentlessly since they are not required to wait for an uptick to sell it short such concerted selling may attract more bears and scare buyers away creating an imbalance that could lead to a precipitous decline in a faltering stock alternative uptick rulein february 2010 the securities and exchange commission sec introduced an alternative uptick rule designed to promote market stability and preserve investor confidence during periods of volatility 3the new rule states that short selling a stock that has already declined by at least 10 in one day would only be permitted on an uptick it is hoped that this will give investors enough time to exit long positions before bearish sentiment potentially spirals out of control leading them to lose a fortune 3most securities are covered by the rule in the event it is activated the alternative uptick rule would apply to short sale orders for the remainder of the day as well as the following day example of an uptickstock abc is currently priced at 15 50 sentiment on the stock is positive as the company has come out with a new product that is supposed to outperform all competitors investors are bullish on the stock and start purchasing it the stock goes from 15 50 to 15 60 in one transaction which is an uptick 