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Short Index - Part 1

Updated on 2010-02-23





This is the first part of a two part series on how to create a composite called the Short Index.

There are two different types of short sale files released by the FINRA, which is the largest independent securities regulator in the US, and U.S. Exchanges (NYSE, NASDAQ...). The first file is released daily and is called the "Daily Short Sale Volume File". It contains the total short selling volume of each security for a particular day. For this report, only the volume that occurs during normal market hours is reported.
The second report, which is called the "Monthly Short Sale Transaction File", is released monthly and it contains much more information. In fact, it contains short transaction data, including the transaction price, the number of traded shares and transaction time, for every security.

Short selling data can be downloaded freely from the FINRA website as well as from U.S. exchange websites. The Short Selling Data downloader automatically download the daily short sell volume data from the FINRA website and adds it to a custom database. You can then access this database using this trading software vector-based language to plot short selling time-series, create trading rules or trading systems...

In this post, we will show you how to use this data to create the Short Index.
The short selling database contains three fields:
Short: This is the total short volume for a particular stock and for a particular day
Total: This is the total volume (includes short and long volume)
Ratio: This field is calculated by dividing the short volume by the total volume and then multiplying the result by 100. The higher this value is, the more short volume occurred.

The Short Index composite, we are about to create, can also be called Short Ratio Index or the Short Selling Index and it will use the same formula we used to calculate the ratio above. However, the Short Index is calculated for the entire market, not for an individual stock.
The first thing you have to do is to locate the composite plug-in and opens it. Select "Tools" then click on "Composites".
Create a new composite by clicking on the "Add" button in the "Composites" form.
You will have to select the symbols that will make part of the Short Ratio Index. Leave the filter blank, so all symbols are included, and then click on "Next" to switch to the "Formula" view.

The "Formula" view is the most important part in the process of creating a composite. There is the formula editor where you will type one or several composite formulas. You will have to choose the "Calculation function" or what function to use when calculating the short index. Finally, you can create a script using a .Net language in the script editor, in case you want to create advanced indices or composites.

The implementation of our short index is not complicated but we will need to use the script tool to create it.

To be continued











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