The Commodex logic is generally well known, simple, and accepted. There are four basic assumptions behind the series of Commodex formulas:
Commodex uniquely reduces these theories into precise mathematical comparisons.
Price relative to a short term historical perspective;
Price relative to a long term historical perspective;
Change in price relative to changing volume;
Change in price relative to changing open interest.
The maximum index values are +10 for strong long side accumulation and -10 for strong short side accumulation. The scale is as follows:
This is known as the Commodex Daily Index because it measures market action for each day.
In addition to the Daily Index, Commodex computes an “on-balance” composite of “dailies” called the Trend Index. The Trend Index measures accumulations and distributions of Daily Index numbers over a statistically significant period. The maximum Trend Index values are -100 for strongly oversold and +100 for highly overbought.
The Trend Index operates as both an oscillator and an overbought/oversold indicator. When the Trend Index changes speed, it indicates a change in market momentum. A change in direction indicates a change in trend.
Very high or very low Trend Index values take place after long periods of buying or selling. Under such conditions, markets become top-heavy or bottom-heavy. This is particularly true as contracts approach expiration. The “liquidation window” closes as time to expiration decreases.
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