Using the Demand Index to Interpret Price and Volume
Summary
The Demand Index combines price and volume into an indicator intended to anticipate changes in price. Its calculation has one configurable input: the period. The document outlines six interpretive rules covering divergence, extreme readings, zero-line crossings, and movement around zero. It presents the indicator as a tool for spotting possible reversals, confirming price trends, and assessing their strength.
The stated evidence consists of these rules of thumb; no charts, tests, or performance results are provided. Divergence and extreme peaks are described as potential warnings of tops or bottoms, while crossing zero may confirm a trend change with a delay. These are interpretive claims, not validated forecasts in this document. Readers would need to test the indicator across instruments and time periods, and account for false signals before relying on it in a trading system.
Key ideas
- The Demand Index combines price and volume and is intended to lead some price changes.
- Divergence between the indicator and price may warn of a reversal.
- An extreme indicator peak may precede further price highs, while a weaker peak at a high price may confirm a market top.
- Crossing zero can confirm a trend change, but the signal may arrive late.
- Frequent movement around zero is presented as a sign of a weak, potentially short-lived trend.
- The document provides interpretive rules but no empirical tests or performance evidence.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.