Positioning Flow Index by DGT

Positioning Flow Index (PFI) is a positioning-analysis framework designed to evaluate how price movement and Open Interest interact to reveal changes in market participation and positioning.

Rather than interpreting price direction alone, PFI combines normalized Price and Open Interest changes to identify four distinct positioning regimes:

Long Buildup - Short Buildup - Short Covering - Long Unwinding

The indicator evaluates the magnitude and direction of both Price and Open Interest through Z-score normalization, allowing unusually strong changes to be distinguished from ordinary market fluctuations.

In addition to the Positioning Flow Index itself, PFI provides a Flow State, Signal Strength, Price Sentiment, and an optional State Ribbon to help traders interpret the underlying positioning environment.

The objective is not to produce a simple Buy or Sell signal, but to provide a structured view of whether price movement is being accompanied by increasing or decreasing market participation and how strongly those two dimensions are aligned.

Price and Open Interest provide two different perspectives on market behavior.

Price describes the direction and relative strength of the current price movement.

Open Interest describes the change in outstanding derivative positions and provides an additional dimension for evaluating whether market participation is expanding or contracting.

PFI normalizes both dimensions using Z-scores, measuring how unusual the current Price and Open Interest changes are relative to their recent history.

A positive Z-score indicates a move above its recent average, while a negative Z-score indicates a move below its recent average.

This allows the indicator to distinguish between ordinary price/OI fluctuations and more statistically unusual changes in positioning.

The Flow State classifies the relationship between Price and Open Interest into four positioning regimes.

LONG BUILDUP (LB)
Price is rising while Open Interest is increasing.

This combination indicates upward price pressure accompanied by expanding participation, a condition commonly associated with new long positioning.

SHORT BUILDUP (SB)
Price is falling while Open Interest is increasing.

This indicates downward price pressure accompanied by expanding participation, commonly associated with new short positioning.

SHORT COVERING (SC)
Price is rising while Open Interest is decreasing.

Price is moving upward while outstanding positions contract, a condition commonly associated with short positions being closed.

LONG UNWINDING (LU)
Price is falling while Open Interest is decreasing.

Price is moving downward while outstanding positions contract, a condition commonly associated with long positions being closed.

When Price and Open Interest do not both exceed the required activity threshold, the market is classified as NEUTRAL.

Neutral does not mean that the market is inactive. It means there is insufficient synchronized Price + Open Interest evidence to assign one of the four directional positioning states.

The Positioning Flow Index provides a bounded -100 to +100 representation of positioning flow.

Its calculation combines the normalized Open Interest and Price changes through a selectable Flow Model.

Model A — OI × sign(Price)

Open Interest determines the magnitude of the flow while Price determines its direction.

This model emphasizes participation strength and can produce a strong reading even when the price movement itself is relatively small.

Model B — OI × Price

The Open Interest and Price Z-scores are multiplied directly.

This captures the interaction between both dimensions, but unusually large Price Z-scores can have a greater influence on the resulting flow.

Model C — Price Direction × OI Magnitude × Price Confirmation

Price determines directional pressure, Open Interest determines participation magnitude, and the absolute Price Z-score contribution is capped to reduce the influence of extreme price moves.

This model separates the directional role of Price from the participation role of Open Interest and is the default model.

The three models are intentionally provided as different ways of interpreting the same underlying Price/OI relationship rather than as competing signals.

Not every Flow State carries the same level of evidence.

PFI therefore calculates a Signal Strength based on two independent components:

Participation — derived from the magnitude of the Open Interest Z-score.

Confirmation — derived from the magnitude of the Price Z-score.

Both components are capped at 2σ and combined using their geometric mean:

Signal Strength = √(Participation × Confirmation)

The result is expressed as a percentage and provides a measure of how strongly Price and Open Interest are moving together.

Higher values indicate stronger synchronized evidence.

Importantly, Signal Strength is not a probability that the current move will continue. It measures the strength of the evidence supporting the current Flow State.

PFI separates early developing conditions from confirmed state transitions.

Early Flow Warning uses the live, still-forming candle to identify a potential transition before the candle closes. These warnings are intentionally provisional and may change or disappear as Price or Open Interest changes during the candle.

Confirmed Flow Signals are evaluated only when the candle closes.

Once confirmed, the LB / SB / SC / LU marker is based on the completed candle and does not change afterward.

This distinction allows traders to see developing positioning changes early while maintaining a clearly defined, non-repainting confirmation layer.

The indicator therefore does not attempt to hide the natural evolution of live Price and Open Interest data. Instead, it explicitly separates early information from confirmed information.

The optional Price Sentiment component provides an independent view of price behavior.

Price movement is smoothed and normalized over its recent range, then expressed on the same -100 to +100 scale as the Positioning Flow Index.

This allows Price Sentiment and PFI to be compared directly:

Price Sentiment describes the current character of price movement.

PFI incorporates both Price direction and Open Interest positioning.

The two therefore answer different questions and can provide additional context when interpreted together.

The optional State Ribbon provides a continuous visual representation of the current Flow State directly on the main price chart.

Teal represents Long Buildup.

Red represents Short Buildup.

Yellow represents Short Covering.

Orange represents Long Unwinding.

Gray represents Neutral conditions.

The intensity of the ribbon is influenced by Signal Strength, allowing stronger positioning conditions to stand out visually without requiring additional labels on every bar.

The optional Flow Dashboard summarizes the current positioning environment through five key readings:

• Flow State — the current Price/OI positioning regime.

• Signal Strength — the strength of synchronized Price + OI evidence.

• PFI — the bounded Positioning Flow Index.

• Price Z-Score — how unusual the current price movement is relative to its recent history.

• OI Z-Score — how unusual the current Open Interest change is relative to its recent history.

Together, these readings provide both the classification and the underlying measurements used to interpret it.

PFI is best used as a contextual positioning tool rather than a standalone entry system.

A strong Long Buildup suggests rising price accompanied by expanding Open Interest.

A strong Short Buildup suggests falling price accompanied by expanding Open Interest.

A strong Short Covering condition suggests rising price while Open Interest contracts.

A strong Long Unwinding condition suggests falling price while Open Interest contracts.

The Signal Strength helps distinguish stronger synchronized conditions from weaker ones, while the PFI provides a continuous measure of directional positioning flow.

As with all market-structure and positioning analysis, these states describe the current relationship between Price and Open Interest—they do not guarantee future price direction.

PFI is designed for markets where Open Interest data is available.

The Flow State is based on the relationship between Price and Open Interest and should not be interpreted as a direct measure of individual trader intent.

Early Flow Warnings are intentionally repaintable during the active candle because they use live, developing Price and Open Interest data.

Confirmed Flow markers are non-repainting because they are generated only after the candle has closed.

The selected Flow Model affects the PFI calculation, while the Flow State and Signal Strength provide separate measurements of the underlying Price/OI relationship.

Positioning Flow Index brings Price and Open Interest together into a structured framework for analyzing market positioning.

Rather than asking only "Is price going up or down?", PFI asks a broader question:

"What is happening to market positioning as price moves?"

By combining Flow State, Signal Strength, Positioning Flow Index, Price Sentiment, and confirmed versus early signals, PFI provides a multi-dimensional view of positioning that can be incorporated into discretionary market analysis and existing trading frameworks.

This script is intended for informational and educational purposes only. It does not constitute financial, investment, or trading advice. All trading decisions made based on its output are solely the responsibility of the user.