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This function uses short selling data to create a short indicator that determines whether short traders are stronger or weaker. This is done by calculating for each trading bar, the difference between short sell volume that occurred above and below a specific stock price.
Here is how the calculation process occurs. For each trading bar:
- Calculate the sum of short volumes for N-bars period and only for bars where the bar mi-price is higher than the current bar mid-price. (A)
- Calculate the sum of short volumes for N-bars period and only for bars where the bar mi-price is lower than the current bar mid-price. (B)
- Calculate the difference between A and B for each trading bar.
(The bar mid-price is the calculated as follows: Average of the high and low prices plus the low price)
The result is a line that increases and decreases in the opposite direction of the stock price.
This short indicator can be interpreted as follows: In any trading bar, the indicator value is the difference between the short volume that occurred at a higher price and the short volume that occurred at a lower price. This means that the higher the short indicator value is, the more short sale transactions occurred at a higher level than the current price, and thus the more traders are making money.
This short indicator is better used in a non-trending market. For example, in a trending bear market and in case you are using a low period; the short indicator value will be very high because during the lookback period, no closing prices were above the current price level.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.