Herrick Payoff Index

The Herrick Payoff Index takes account of a derivative contract's price, volume, and open interest to generate bullish and bearish signals. 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 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. There are also generally accepted relationships between the price trend and the trend of open interest.