WHAT IS STIX

STIX is a term that refers to a short-term trading oscillator keyed to volume.

BREAKING DOWN STIX

STIX is a short-term oscillator that compares the amount of volume flowing into advancing and declining stocks. The STIX oscillates around the 50 level, generating values over 50 when advancing stocks outnumber declining stocks. The short term trading oscillator produces numbers over 50 when advancers are less than decliners. The trading range for the STIX hovers generally between 42 and 58. If the STIX shows levels below 42 it indicates that markets  are in extremely oversold conditions, with levels above 58 denoting extremely overbought market conditions.

To calculate the STIX, one takes a 21-period exponential moving average of a variation of the advance/decline ratio. A popular market-breadth indicator used in technical analysis, the advance/decline ratio compares the number of stocks that closed higher against the number of stocks that closed lower than the previous day's closing prices. With the advance/decline ratio representing advancing stocks as a percentage of all stocks, both advancing and declining, the formula is STIX = (advance/decline ratio x 0.09) + (previous STIX x 0.91). In order to calculate the advance/decline ratio, an individual can divide the number of advancing shares by the number of declining shares over 21 days.

Who Uses STIX

Technical traders use STIX and other oscillators to indicate when to buy or sell. Technical analysis is one of the two main schools of thought on how to analyze the financial markets. Technical analysis uses different technical indicators to analyze and predict the movements of the markets. The other main system of thought is fundamental analysis, which takes into account both economic and financial factors that influence a business. Technical traders prefer past trading activity and price changes of a security to base the future price movements of a given security.

An individual can apply technical analysis to forecast the price movement of most tradable instruments, as long as that instrument is subject to the market forces of supply and demand, such as stocks, bonds, futures and currency pairs. Within technical analysis, analysts have developed a variety of technical indicators to support accurate price forecasting, of which STIX is one. For example, if a technical trader used STIX as an indicator for which stocks to buy and sell, they would purchase stocks when STIX dropped to 45 or below and sell when the STIX reached 56 or above. This practice however, is not applicable in either extremely bearish or bullish markets.