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In MS you can use the build-in HPI-indicator not only for futures/options.
When your datafile's "Open Intrest"(O/I) coloms data contents is set to
at least a mimimum of "1" as value, then this indicator is very well to be
used on stocks/indexes as well
(a bit on the side, but "1" is also a computer value meaning "enabled"
and "0" is "not enabled").
Best results ofcourse are given when the "Volume"(Vol) coloms data
contains any traded values as well.
Regards,
Ton Maas
Ms-IRB@xxxxxxxxx
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Herrick Payoff Index - MetaStock 6.x
The Payoff Index is a commodity trading tool that is useful in the early identification
of changes in the direction of price trends and is used to analyze futures and
commodities. Because the Index uses open interest in its calculations, the security
must contain open interest.
Description
This is a commodity trading tool, useful for the early spotting of changes in price
trend direction. The Payoff Index is best used to distinguish trends that are
destined to continue from those that will most likely be short-lived.
The Payoff Index frequently helps distinguish between a rally in a trend that is
destined to continue and a significant trend change that will provide a worthwhile
trading opportunity.
Interpretation
The Payoff Index tends to give coincident signals within a day or two before a
significant change in price trend. This advance action is accomplished through use
of trading volume and contract open interest to modify the price action.
Analysts have observed that volume trends often change before a price-trend change.
There are also generally accepted relationships between the price trend and the
trend of open interest.
Futher the interpretation of the Herrick Payoff Index involves visually comparing
the action of the Index with the price while looking for divergences and convergences.
An example divergence would be increasing prices while the Index is falling.
An example convergence would be decreasing prices while the Index is rising.
Calculation
Briefly, the calculation of the Herrick Payoff Index involves computing the mean
price for each day and then using this information to compute the difference in mean
prices for each day. The flow of money into, or out of, the commodity is then
computed by multiplying the change in the mean prices by the day's volume to arrive
at a total change in dollars for the day. MetaStock uses the dollar value of a one
cent move (input by the user) to modify the "money flow" by changes in open interest.
The daily values of the "modulated dollar amount" are then smoothed with an
exponential moving average.
Before the Herrick Payoff Index is calculated, you will be prompted to enter a
smoothing factor known as the "multiplying factor." The multiplying factor is part
of a complex smoothing mechanism. However, the results are similar to the smoothing
obtained by a moving average. For example, a multiplying factor of ten produces
results similar to a 10-period moving average.
Tip
Open interest is usually not available for the most recent day. Thus, the right most
data point of the Herrick Payoff Index is usually blank.
Parameters
The parameters for the Herrick Payoff Index are shown below. These parameters are
specified at the time the indicator is plotted. You can edit the parameters of an
existing plot by right-clicking on the indicator and choosing Properties from the
shortcut menu.
One Cent Move. According to Herrick, the recommended input for "the value of a one
cent move" is "100" for most commodities. The only exception is
for Silver, which should be "50."
Multiplying Factor. The multiplying factor is part of a complex smoothing mechanism.
However, the results are similar to the smoothing obtained by a moving
average. For example, a multiplying factor of ten produces results
similar to a 10-period moving average.
Custom Indicator
SYNTAX hpi( CENTS, MULTIPLYING FACTOR )
FUNCTION Calculates the predefined Herrick Payoff Index.
EXAMPLE hpi(100, 10)
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