Tick Test
Market Microstructure glossary · Spread Economics & Liquidity Measurement
Definition
A trade-classification rule that labels a trade as buyer-initiated if the trade price is higher than the previous trade price (uptick), seller-initiated on a downtick. The fallback inside the Lee–Ready algorithm.
Tick Test in plain English
When you look at raw trade data, you often can't tell whether a trade happened because an eager BUYER reached up to grab shares or an eager SELLER dumped them — but that matters a lot for understanding the market. The Tick Test is a quick guess rule: if this trade's price is higher than the one just before it (an 'uptick'), assume a buyer was the pushy one; if it's lower (a 'downtick'), assume a seller was. Think of an auction where you can't see who's bidding, but every time the price ticks up you can bet an enthusiastic buyer just pushed it there. It's not perfect, which is why it's used as a backup step inside a bigger classification recipe called the Lee–Ready algorithm.
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