Herrick Payoff Index: Reading Futures Money Flow and Price Divergences
Summary
The Herrick Payoff Index is presented as a futures indicator intended to estimate money flowing into or out of a contract. Its calculation uses price movement, volume, and changes in open interest, so it requires an instrument with open-interest data. The stated interpretation is directional: readings above zero suggest inflows and a bullish implication, while readings below zero suggest outflows and a bearish implication. Traders are also advised to compare the indicator with price and watch for divergences.
The document includes an implementation that smooths the index and displays a normalized version alongside moving averages. However, the accompanying explanation does not specify how to trade divergences, define confirmation rules, or assess performance. The supplied code also contains platform-specific details and appears to substitute closing price for open interest in one assignment, which may affect whether the calculation matches the stated concept. No validation results are given, so the indicator should be treated as an analytical aid rather than evidence of a profitable strategy.
Key ideas
- The Herrick Payoff Index is designed for futures contracts with open-interest data.
- Its calculation combines price change, volume, and changes in open interest.
- Positive readings are interpreted as money entering a contract, while negative readings suggest money leaving.
- Comparing the index with price may reveal divergences, but the document gives no specific trade rules.
- The supplied implementation may not faithfully represent the stated open-interest input and includes no performance validation.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.