The Demand Index is a lesser known index. It tries to follow price and volume values of a stock. It is a momentum indicator of price and volume, The mathematical derivation of Demand Index is complicated, thus it will not be covered here, but later on at another post.
Useful values for n, i.e. the number of days for the Demand index to be calculated, seem to be in the 40- 49 days. These may give the highest profit when backtested. Backtesting is a computerized procedure to optimize indicator values and it will be discussed in a subsequent article.
The Demand Index involves the Moving Average values as well, thus usually a 40 day, or 49 day average can be used to calculate the Demand Index.
Demand index is a proprietary indicator, copywrited to its creator, James Sibbet.
During backtesting, it did provide some consistent results but not as much as other popular indicators.
The indicator showed some randomness with various values when backtested which were alarming i.e. dangerous to deal with. In other words, the drawdown was substantial. Therefore it needs to be traded with caution because it may reach to lose a significant amount of money before actually making any profit.
In general, Demand Index needs further studying and understanding to be used for trading. In a subsequent article we will deal with the calculation of Demand Index and some examples of how it performed. The way it is traded is by buying long and selling short when the signals are triggered, thus it makes money even when the stock is falling.
In overall and for time being, it may be ignored, as it is termed as one of the more complex indicators out there. Professional traders may want to study further the Demand Index indicator rather than casual traders to involve with it.
Useful values for n, i.e. the number of days for the Demand index to be calculated, seem to be in the 40- 49 days. These may give the highest profit when backtested. Backtesting is a computerized procedure to optimize indicator values and it will be discussed in a subsequent article.
The Demand Index involves the Moving Average values as well, thus usually a 40 day, or 49 day average can be used to calculate the Demand Index.
Demand index is a proprietary indicator, copywrited to its creator, James Sibbet.
During backtesting, it did provide some consistent results but not as much as other popular indicators.
The indicator showed some randomness with various values when backtested which were alarming i.e. dangerous to deal with. In other words, the drawdown was substantial. Therefore it needs to be traded with caution because it may reach to lose a significant amount of money before actually making any profit.
In general, Demand Index needs further studying and understanding to be used for trading. In a subsequent article we will deal with the calculation of Demand Index and some examples of how it performed. The way it is traded is by buying long and selling short when the signals are triggered, thus it makes money even when the stock is falling.
In overall and for time being, it may be ignored, as it is termed as one of the more complex indicators out there. Professional traders may want to study further the Demand Index indicator rather than casual traders to involve with it.
Hi Christopher. I found your article through my searches of the Demand index formula. There seems to be no definitive and reputable source for the formula. A lot of peoples guess work. There is almost this mysticism surrounding this indicator and I have spent weeks searching for the real formula by James Sibbet. Would you mind discussing via email?
ReplyDeleteharrisonwwalls@gmail.com