Adaptive Volume‐Demand‐Index (AVDI)

Demand Index (according to James Sibbet) – Short Description

The Demand Index (DI) was developed by James Sibbet to measure real “buying” vs. “selling” strength (Demand vs. Supply) using price and volume data. It is not a standalone trading signal, but rather a filter and trend confirmer that should always be used together with chart structure and additional indicators.

---

\1. Calculation Basis\

1. Volume Normalization

$$
\text{normVol}_t
= \frac{\text{Volume}_t}{\mathrm{EMA}(\text{Volume},\,n_{\text{Vol}})_t}
\quad(\text{e.g., }n_{\text{Vol}} = 13)
$$

This smooths out extremely high volume spikes and compares them to the average (≈ 1 means “average volume”).

2. Price Factor

$$
\text{priceFactor}_t
= \frac{\text{Close}_t - \text{Open}_t}{\text{Open}_t}.
$$

Positive values for bullish bars, negative for bearish bars.

3. Component per Bar

$$
\text{component}_t
= \text{normVol}_t \times \text{priceFactor}_t.
$$

If volume is above average (> 1) and the price rises slightly, this yields a noticeably positive value; conversely if the price falls.

4. Raw DI (Rolling Sum)
Over a window of \$w\$ bars (e.g., 20):

$$
\text{RawDI}_t
= \sum_{i=0}^{w-1} \text{component}_{\,t-i}.
$$

Alternatively, recursively for \$t \ge w\$:

$$
\text{RawDI}_t
= \text{RawDI}_{t-1}
+ \text{component}_t
- \text{component}_{\,t-w}.
$$

5. Optional EMA Smoothing
An EMA over RawDI (e.g., \$n\_{\text{DI}} = 50\$) reduces short-term fluctuations and highlights medium-term trends:

$$
\text{EMA\_DI}_t
= \mathrm{EMA}(\text{RawDI},\,n_{\text{DI}})_t.
$$

6.Zero Line

Handy guideline:

• RawDI > 0: Accumulated buying power dominates.
  
• RawDI < 0: Accumulated selling power dominates.
  
  • 2. Interpretation & Application
    
    Crossing Zero
    
    RawDI above zero → Indication of increasing buying pressure (potential long signal).
    RawDI below zero → Indication of increasing selling pressure (potential short signal).
     Not to be used alone for entry—always confirm with price action.
    
    RawDI vs. EMA_DI
    
    RawDI > EMA\_DI → Acceleration of demand.
    RawDI < EMA\_DI → Weakening of demand.
    
    Divergences
    
    
    • Price makes a new high, RawDI does not make a higher high → potential weakness in the uptrend.
      
    • Price makes a new low, RawDI does not make a lower low → potential exhaustion of the downtrend.
      
    
    
    3. Typical Signals (for Beginners)
    
    \1. Long Setup\
    
    
    • RawDI crosses zero from below,
      
    • RawDI > EMA\_DI (acceleration),
      
    • Price closes above a short-term swing high or resistance.
      
    • Stop-Loss: just below the last swing low, Take-Profit/Trailing: on reversal signals or fixed R\:R.
      
    
    
    2. Short Setup
    
    
    • RawDI crosses zero from above,
      
    • RawDI < EMA\_DI (increased selling pressure),
      
    • Price closes below a short-term swing low or support.
      
    • Stop-Loss: just above the last swing high.
      
    
    
    
    ---
    
    4. Notes and Parameters
    
    Recommended Values (Beginners):
    
    
    • Volume EMA (n₍Vol₎) = 13
      
    • RawDI window (w) = 20
      
    • EMA over DI (n₍DI₎) = 50 (medium-term) or 1 (no smoothing)
      
    
    
    Attention:\
    
    
    • NEVER use in isolation. Always in combination with price action analysis (trendlines, support/resistance, candlestick patterns).
      
    • Especially during volatile news phases, RawDI can fluctuate strongly → EMA\_DI helps to avoid false signals.
      
    
    
    ---
    
    Conclusion The Demand Index by James Sibbet is a powerful filter to assess price movements by their volume backing. It shows whether a rally is truly driven by demand or merely a short-term volume anomaly. In combination with classic chart analysis and risk management, it helps to identify robust entry points and potential trend reversals earlier.