Herrick Payoff Index [HPI]

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The Herrick Payoff Index function determines the amount of money flowing into or out of a futures contract by analyzing volume, price changes, and open interest changes. Note: This function requires Open Interest information as part of the data. Parameters ------------------ High                                  The high price of the security for each given day. Low                                   The low price of the security for each given day. Volume                              The number of shares of the security that were traded during each given day. Open Interest                    The number of open contracts for each given day. Multiplying Factor              A smoothing factor similar to the period of an exponential moving average.                                          A period of 3 includes roughly the current value and the two previous values. Value of One Cent Move  The value associated with the movement of the price.                                          A value of 100 is typically used for all commodities except silver, which should be 50. Note that while this function is intended for use with these specific values, any values can be used for these parameters, including other price values and averaged prices. Indicator Value ------------------------ The Herrick Payoff Index indicator determines the amount of money flowing into or out of a futures contract. The value primarily increases and decreases with the average price for each day, with the amount regulated by the trading volume, changes in the number of open contracts, and changes in the average price. The value of each new day is combined with the value of the previous day using the multiplying factor. Since this is a cumulative indicator, the value at the beginning of the data series is zero. Usage ----------- When the Herrick Payoff Index is above zero, money is flowing into the contract. When it is below zero, money is flowing out of the contract. The primary thing to watch for is a divergence from the price. If prices are increasing and the indicator is decreasing, prices will typically correct to confirm the indicator. Source ------------ This indicator is based on an entry in "Technical Analysis From A To Z" by Steven B. Achelis. It was originally developed by John Herrick.