What it means
The indicator was developed by David Bostian, and it starts from a simple idea about who controlled the day. If a share closes near the top of its daily range, buyers probably controlled the day, and if it closes near the bottom, sellers probably did.
Volume makes that signal stronger. A close near the high on heavy volume says more than the same close on very thin volume, so the index multiplies the position of the close within the range by the number of shares traded.
Each day produces one reading, which can be positive or negative. Analysts add up the readings over a period, commonly 21 trading days, and often divide by total volume to produce a percentage that is easier to compare between shares.
Traders use the result in two ways. They watch whether the indicator is rising or falling, and they look for divergence, where the share price makes a new high while the indicator does not, which may warn that the rise lacks support.
Like every technical indicator, it is a tool, not a prediction. It is built entirely from past prices and volumes, it can give false signals, and it works best alongside other analysis such as company fundamentals and market conditions.
Professional users often test it on a share's own history before relying on it. The nuance is the treatment of days with no range.
If the high and low are the same, the formula divides by zero, so software usually sets the reading for that day to zero or skips it.
In practice
Real-world examples.
Example
A technical analyst reviews a mid-sized retailer's shares. The share price has been flat, but the Intraday Intensity Index has risen steadily for three weeks. She reads this as a sign that large buyers are accumulating the shares and adds the stock to her watch list. She plans to review the company's accounts before taking any position.
Example
A fund manager sees a share price making new highs while the indicator falls. He concludes that the rally may lack support from buyers. He trims his position and sets a tighter stop-loss order. He explains the reason in his weekly note to clients.
Example
A trader screens hundreds of shares for readings above 20. The list highlights shares that closed in the upper part of their ranges on rising volume. He then checks each company's news before deciding whether to trade. Shares with pending announcements are removed from the list.
Formula
Calculation
Daily intraday intensity = (2 x Close - High - Low) / (High - Low) x Volume
Intraday Intensity % = (21-day sum of daily intensity / 21-day sum of volume) x 100
Suppose a share has a high of $52, a low of $48, a close of $51 and volume of 200,000 shares. The numerator is 2 x 51 - 52 - 48 = 102 - 100 = 2, and the range is 52 - 48 = 4. The daily intensity is 2 / 4 x 200,000 = 0.5 x 200,000 = 100,000. If the 21-day sum of daily intensity is 1,260,000 and the 21-day volume is 4,200,000 shares, the percentage is 1,260,000 / 4,200,000 x 100 = 30. A reading of 30 is clearly positive, on a scale from -100 to +100.Case study
Seen in the real world.
This is an illustrative story about a fictional investor, Priya, who followed a company called Altair Components. Its share price had moved sideways between $40 and $44 for two months, and most commentators saw nothing of interest.
Priya noticed that the Intraday Intensity Index had turned positive and risen steadily, reaching a reading of 25. Closes were repeatedly in the upper half of the day's range, and volume was higher on up days than on down days.
A few weeks later, the company announced a large contract and the shares broke out above $44. This is an illustrative account, and the indicator does not predict news, but it showed that demand had been building before the announcement. Priya also noted that on other occasions, similar readings were followed by no move at all, so she kept her position small.
Watch out
Common mistakes.
- Treating a high reading as a buy signal on its own. It should be confirmed by other evidence, such as the trend in price and the company's news.
- Comparing raw sums between shares with different volumes. Use the percentage form so that large and small shares can be compared.
- Ignoring the period setting. A 21-day reading and a 5-day reading respond differently and should not be mixed.
Questions
People also ask.
Who created the Intraday Intensity Index?
It was developed by David Bostian as a way to measure buying and selling pressure using the close, the range and volume.
What does divergence mean here?
It is when the share price and the indicator move in opposite directions, which can suggest that the price trend is weakening, although it does not say when a reversal will happen.
What range does the percentage version take?
It lies between -100 and +100, with readings closer to the extremes showing stronger pressure.
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