The Herrick Payoff Index is designed to show the amount of money flowing into or out of a futures contract. When the Herrick Payoff Index is above zero, it shows that money is flowing into the futures contract which is bullish. When the Index is below zero, it shows that money is flowing out of the futures contract which is bearish. No information on this site is investment advice or a solicitation to buy or sell any financial instrument.
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When the Herrick Payoff Index HPI dips below the zero line and is seen in a sustained descent, it could mean money will continue to flow out of the commodity or derivative instrument. A trader may consider cutting losses or purchasing derivatives to hedge against further decline. On the flip side, if the HPI is seen moving upward and crosses above the zero line, it could indicate new money flowing into the derivative or commodity, and a trader may want to consider going long or exploring call options or futures betting on a higher price.
Click here to view the current news with the use of other Technical Indicators. The Herrick Payoff Index is one of the only indicators to combine price, volume, and open interest data for the analysis of futures , commodities , and derivatives. It can be useful for spotting divergences that may occur before prices change direction, or for confirming price trends.
One of its most significant parameters is the value of a one-percent move, called pointValue, and this is a user-set parameter. Some analysts today recommend setting the pointValue to for Financials and for most commodities, for instance.
A smoothing factor for the number of periods that are to be included in the calculation is also determined by the user. The Index value will fall between 1 and -1, with values over zero indicating bullish activity, with money flowing into the instrument, and values under zero indicating bearish activity, with money flowing out of the instrument.
As seen in the accompanying chart, trends in positive and negative directions, as well as peak and trough levels in comparison to the preceding peaks and troughs, can be used to find confirmation and divergences that may lead to profitable trades preceding price activity. They verify how well a specific indicator works for a particular security. The calculation of the odds of success under similar market conditions is the best way to go.
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Click here to view the current news with the use of other Technical Indicators The Herrick Payoff Index is one of the only indicators to combine price, volume, and open interest data for the analysis of futures , commodities , and derivatives.
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This is a commodity trading tool, useful for the early spotting of changes in price trend direction. The Payoff Index is best used to distinguish trends that are destined to continue from those that will most likely be short-lived. The Payoff Index is a commodity trading tool that is useful in the early identification of changes in the direction of price trends. The Payoff Index frequently helps distinguish between a rally in a trend that is destined to continue and a significant trend change that will provide a worthwhile trading opportunity. The Payoff Index tends to give coincident signals within a day or two before a significant change in price trend. This advance action is accomplished through use of trading volume and contract open interest to modify the price action. Analysts have observed that volume trends often change before a price-trend change.
Herrick Payoff Index
Last Updated on May 16, The Herrick Payoff Index HPI uses volume, open inerest, and price to signal bullish and bearish divergences in the price of a future or options contract. The use of open interest in the calculation of the HPI means the indicator can only be used with futures and options. The HPI is based off of two premises regarding open interest:. The logic behind the HPI indicator is that there was much trader excitement in crude oil at High 1, characterized by increasing volume and open interest. Even though crude oil prices made a higher high at High 2, volume and open interest changes did not match those price increases on the second high. The HPI indicator then retreated below the zero line, the bearish price action in crude oil was confirmed.
What is use the Herrick Payoff Index in Trading
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