Overview

The Herrick Payoff Index is designed to show the amount of money flowing into or out of a futures contract. The Index uses open interest during its calculations, therefore, the security being analyzed must contain open interest

The Herrick Payoff Index was developed by John Herrick.

Interpretation

When the Herrick Payoff Index is above zero, it shows that money is flowing into the futures contract (which is bullish). When the Index is below zero, it shows that money is flowing out of the futures contract (which is bearish).

The interpretation of the Herrick Payoff Index involves looking for divergences between the Index and prices. The trend lines identify a bearish divergence where prices were making new highs while the Payoff Index was failing to make new highs. As is typical with divergences, prices corrected to confirm the indicator.