This indicator combines elements of price action, volume, and open interest to provide insights into market strength and potential trend reversals. This script calculates the Herrick Payoff Index (HPI) based on a modified formula that incorporates volume and open interest adjustments.
The HPI is derived from comparing the current day's mean price to the previous day's mean price, factoring in volume and open interest changes. By analyzing these factors, the indicator aims to gauge the effectiveness of market participants' positions.
Key Features:
- HPI Calculation: The HPI value is calculated using the formula: ((M - My) * C * V) * (1 + |OI - OI| / min(OI, OI)), where M represents the mean price for the current day, My represents the mean price for the previous day, C is a constant (set to 1), V is the volume, and OI is the open interest. This adjusted calculation accounts for changes in volume and open interest, providing a more nuanced view of market dynamics.
- Moving Averages: The script also includes two Exponential Moving Averages (EMAs) of the HPI values, allowing traders to identify trends and potential reversal points. Users can customize the length of these moving averages to suit their trading strategies.
- Visual Signals: The indicator visually represents the HPI values and their relationship to the moving averages. When the HPI value is above the shorter-term EMA, it suggests bullish momentum, while values below indicate bearish sentiment.
The HPI is derived from comparing the current day's mean price to the previous day's mean price, factoring in volume and open interest changes. By analyzing these factors, the indicator aims to gauge the effectiveness of market participants' positions.
Key Features:
- HPI Calculation: The HPI value is calculated using the formula: ((M - My) * C * V) * (1 + |OI - OI| / min(OI, OI)), where M represents the mean price for the current day, My represents the mean price for the previous day, C is a constant (set to 1), V is the volume, and OI is the open interest. This adjusted calculation accounts for changes in volume and open interest, providing a more nuanced view of market dynamics.
- Moving Averages: The script also includes two Exponential Moving Averages (EMAs) of the HPI values, allowing traders to identify trends and potential reversal points. Users can customize the length of these moving averages to suit their trading strategies.
- Visual Signals: The indicator visually represents the HPI values and their relationship to the moving averages. When the HPI value is above the shorter-term EMA, it suggests bullish momentum, while values below indicate bearish sentiment.