Demand Index
Volume & money flow
James Sibbet combined price and volume into a single indicator that tries to gauge the real demand for a stock. It is praised above all for its early divergence signals.
In its original form this indicator uses volume and/or the daily range (High/Low). The scanner only has closing prices and approximates those inputs (see the note at the bottom). So treat the absolute values as indicative; the direction and the crossings remain usable.
Construction & calculation
- Compute per day the buying pressure and the selling pressure, weighted by volume and by the volatility of the period.
- The Demand Index is the ratio between the two, normalized around a zero line.
DI = f(buying pressure, selling pressure, volume, volatility)
The index fluctuates around zero; +/- 40 are the extreme zones.
Interpretation
- Above zero: demand outweighs supply.
- Sibbet called the Demand Index a 'leading indicator': it often turns before the price.
- An extreme peak (above +40 or below -40) followed by a pullback points to exhaustion of the dominant side.
How the signal works in this scanner
Buy signal (green)The Demand Index crosses the zero line from below to above. Alternatively: it dipped below -40 and is now springing back up from its trough (exhaustion of the sellers).
Sell signal (red)The Demand Index crosses below the zero line, or it peaked above +40 and is now falling back (exhaustion of the buyers).
Watch-outs & pitfalls
- Sibbet's original formula is complex and is implemented slightly differently by various platforms. Do not compare values one-to-one with other software.
- Requires at least 25 trading days.