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The Demand Index is a technical indicator that tries to lead price changes using price and volume data. The indicator was developed by Hames Sibbet.
The current formula requires several parameters:
Price: A time series that is usually set to the close price, midpoint or high plus low divided by two.
Constant: A constant value. The default value is 5.
Periods: Lookback period used to calculate simple and exponential moving averages within the formula.
HighLowBars: The number of trading bars used to calculate the highest high value and lowest low value.
The formula first calculates the buying and selling pressure then the Demand Index. The returned values vary between 100 and -100.
The Demand Index is interpreted as follow:
A top is signaled when the price makes new highs and the Demand Index makes a new low.
A crossover of the Demand Index above or below the zero line signals a change in trend.
A weak price movement is signaled when the Demand Index stays near the zero level for a long period.
A weakness in price is signaled when a divergence occurs between the stock price and the Demand Index.
A long term divergence between the stock price and the Demand Index is a sign that prices have reached a major top or a major bottom.
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