Friday, May 26, 2006

 
Technical Indicators

Herrick Payoff Index

The Herrick Payoff Index determines the amount of money flowing into or out of a futures contract by analyzing volume, price changes, and open interest changes.

When the Herrick Payoff Index is above zero it shows that money is flowing into the futures contract. When the Index is below zero it shows that money is flowing out of the futures contract.
The value of each new day is combined with the value of the previous day using a multiplying factor. Since this is a cumulative indicator the value at the beginning of the data series is zero. The value will primarily increase and decrease with the average price for each day, the amount regulated by the trading volume, changes in the number of open contracts, and changes in the average price.

The primary signal to watch for is a divergence from the price. If prices are increasing and the indicator is decreasing, prices will typically correct to confirm the indicator.

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