Demand Index

The Demand Index is a complex technical indicator that uses price and volume to assess buying and selling pressure affecting a security.

The Demand Index is a complex technical indicator developed by James Sibbet that utilizes over 20 columns of data to measure the ratio of buying pressure to selling pressure. Traders can use this information as a leading indicator that predicts where a security’s price may be headed over the near- and long-term.

James Sibbet established six rules for using Demand Index when the technical indicator was originally published. While traders may use variations of these rules, they serve as a great baseline for using the indicator in practice.

The six rules are as follows:

1. A divergence between the Demand Index and price is a bearish indication.
2. Prices often rally to new highs following an extreme peak in the Demand Index.
3. Higher prices with a low Demand Index often indicate a top in the market.
4. The Demand Index moving through the zero line suggests a change in trend.
5. The Demand Index remaining near the zero line indicates weak price movement that won’t last long.
6. A long-term divergence between the Demand Index and price predicts a major top or bottom.

Traders should use the Demand Index in conjunction with other technical indicators and chart patterns to maximize their odds of success.

<Source: TradingViews>

Demand Index hits four peaks in the first 9 months of 2018. The security tops out about two weeks after the first peak in January 2018, giving way to a major decline that drops the indicator into the bottom of the panel at the same time the decline comes to an end. A second peak in March precedes an intermediate top by less than a week. Both indicator and security then lose ground in a pullback that lasts into late April. Demand Index surges higher in May, posting a third peak a few weeks later.

The security continues to gain ground for another month, indicating a potential false reversal signal. However, Demand Index bounces at the zero line, indicating the uptrend has not changed. A fourth peak in July has little effect, with higher prices well into August. 

The Demand Index is a complex technical indicator that uses price and volume to assess buying and selling pressure affecting a security. The creator, James Sibbet, suggests six rules when using the indicator as a starting point for market analysis.