Sibbet Demand Index (SDI)
The Sibbet Demand Index (SDI), also called Sibbet's Demand Index, is a volume-based oscillator indicator. My favourite Volume indicator.
It combines price and volume data to measure buying pressure versus selling pressure. Developer James Sibbet designed it to often act as a leading indicator of price changes, though it can also behave as a coincidental or lagging indicator depending on the context.
Forum users share multiple MT4 versions of it (e.g., basic, arrows with alerts, smoothed with MTF, and divergence-enhanced versions by contributors like Mrtools and naluvs01). Some smoothed variants explicitly include options such as "histogram on slope" (true/false), allowing the indicator to plot as a histogram (bars) rather than a line when enabled, along with alerts, zones, MTF, and optional levels. This matches the "SDI histogram indicator" reference—the core logic remains identical across versions, with the histogram mode being a display option for easier visual interpretation of momentum shifts or slope changes.
What the SDI Does
The indicator quantifies the balance between demand (buying) and supply (selling) by incorporating both price movement and volume. Positive values generally indicate dominant buying pressure, while negative values show selling pressure. It helps traders spot potential reversals, trend strength/weakness, and exhaustion points earlier than price alone. Sibbet originally scaled it with +0 at the top, 1 in the middle, and -0 at the bottom; modern MT4 implementations rescale it to a standard oscillator range (often around zero) for convenience.
The exact formula is complex (Sibbet's original reportedly requires 21 columns of data and is not fully detailed in the forum posts), but it internally processes cumulative price-volume relationships over periods to produce the index value. Users note it excels particularly at divergence detection, as Sibbet himself highlighted.
How It Generates Signals: Sibbet's 6 Rules
Forum posts (especially a detailed recap in the Volume Indicators thread) quote Sibbet's six interpretive rules directly. These rules form the primary signal-generation framework—no simple crossovers or fixed levels alone; instead, signals arise from the relationship between the SDI line/histogram and price action, peaks, zero line behaviour, and divergences. Here are the rules verbatim as presented on the site:
1. A divergence between the Demand Index and prices suggests an approaching weakness in price.
2. Prices often rally to new highs following an extreme peak in the Demand Index (the Index is performing as a leading indicator).
3. Higher prices with a lower Demand Index peak usually coincide with an important top (the Index is performing as a coincidental indicator).
4. The Demand Index penetrating the level of zero indicates a change in trend (the Index is performing as a lagging indicator).
5. When the Demand Index stays near the level of zero for any length of time, it usually indicates a weak price movement that will not last long.
6. A large, long-term divergence between prices and the Demand Index indicates a major top or bottom.
Practical signal examples from the site:
- Divergence signals (rules 1 and 6): The strongest and most emphasised. Bullish divergence = price makes lower lows while SDI makes higher lows (potential bottom). Bearish divergence = price makes higher highs while SDI makes lower highs (potential top). Long-term divergences signal major reversals. A real-world example cited: Procter & Gamble in 1992 showed a long-term bearish divergence (prices rose, but SDI fell), indicating a major top.
- Extreme peaks (rule 2): A very high SDI peak (especially if histogram bars spike sharply) often precedes a price rally—use as a leading buy signal.
- Lower peaks at highs (rule 3): If price hits new highs but the SDI peak is lower than a previous one, watch for a top (coincidental signal; histogram may show diminishing bars).
- Zero-line crosses (rule 4): SDI crossing above/below zero signals trend change (e.g., from negative to positive = potential uptrend start).
- Prolonged near-zero (rule 5): Flatlining around zero on the histogram or line warns of choppy, weak movement—avoid trending trades.
In enhanced MT4 versions:
- Divergence pack integration automatically marks bullish/bearish divergences with lines or arrows.
- Alerts and arrows trigger on zero crosses, slope changes (especially useful in histogram mode), or divergence events.
- Smoothed + MTF reduces noise and lets you view the SDI from higher timeframes on lower ones.
- Histogram on slope option turns rising/falling momentum into colored histogram bars for quicker visual confirmation of rule-based signals (e.g., shrinking positive bars near a price high flags rule 3).
Additional Notes from Forex Station Discussions
- Some users prefer an RSI-of-SDI variant for extra smoothing, but the core SDI remains popular for its divergence reliability.
- It works on any timeframe or market (stocks, forex, etc.) but shines on daily/weekly charts for long-term signals, as in the Procter & Gamble example.
- No built-in overbought/oversold levels in the original (focus is on relationships, not fixed thresholds), though modern versions add optional levels or zones.
What the SDI Does