Sibbet Demand Index Divergence indicator for Mt4

 

This indicator is the creation of James Sibbet, and uses complex code to make simple work of the interpretation of volume and price both as a leading indicator and a trend indicator as well as an excellent type of sentiment index indictor for finding divergences to forecast what is coming next. 

Detailed descriptions of the various uses are illustrated on this page, it shows superlative qualities over the more well know money flow index indicator. Whilst its use is more specialised than relative strength index indicator it cannot replace the RSI in terms of its use as they are doing different tasks.

There are several ways in which this indicator can benefit traders and investors to determine how markets will behave in the near future .

Divergences

Having studied many technical indicators over the years I have formed the opinion that Demand Index is one of best for finding meaningful divergences.

If the price of the market is making a new high and the  ( D I ) is not this is known as a bearish divergence. This is one instance where this is superior to the CCI index indicator (Commodity Channel index )  which is prone to lots of choppiness. There are several drastic photos below showing extreme cases of divergences to help you understand what to look for.

Trend detection

The crossing of the zero line is an indication of net selling or buying over the length you have specified, it must be noted that in this manner the indicator is acting as a lagging indicator and longer lengths are required with some smoothing to give meaningful results to the supply demand output you can see.

Notwithstanding the above it is important to understand the difference between a "real crossing of zero" trend change move and a false signal as this sentiment index indicator requires a clear and decisive jump through zero to be considered important.

If  ( D I )  is hovering and fluctuating around zero it does not generally mean much, but a decisive break though which stands out is the kind of move that one needs to look for.

Break outs

When a range or tight congestion area can be seen in the Demand Index indicator it is well worth noting that when a break out from this range occurs, it will likely be followed by a break out in the same direction of the underlying market.

As with the above it is also important to know the difference between noise and a real break out pattern, this must be an obvious observation and if you have to spend time asking yourself if it is real or not then it probably is not a good signal.

Prediction of next movement

When an extreme peak in Demand Index occurs it implies serious buying and this is usually followed by one more move up from the market. There is a photo lower down the page showing an example of this acting like a speculative sentiment index indicator showing a huge supply.

Extended divergences over a period of time

When a market continues to trend down and the indicator continues to trend up this is a sign of a major bottom forming and vice versa.