Any of you pros use the DIX to forecast market direction?

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When high-frequency trading (HFT) took over for U.S. equities market-making and consolidated, liquidity providers started leaving trails for us to follow. The Dark Index (DIX) is the culmination of our research into dark pool short volume.

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Why Short Is Long

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To understand, you need to know how market-makers (MMs) do business. Traditionally, market-makers make their money by “quoting a spread.” This means placing a bid at, say, $19.95, and an offer at $20.00. Since the MMs have no position in the stock, the offer at $20.00 is necessarily entered as a short sale?they don't own it, so they can't actually sell it.†

Now imagine the common scenario where one investor sells to the MM at $19.95 and another buys from the MM at $20.00. Knowing that MMs place short sales at the offer, we know that only one of these trades will be reported as “short”?the one where the investor is buying stock at $20.00

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This means that whenever a market-maker fills an investor's buy order, the MM is facilitating the trade by shorting shares. Thus, short volume is actually representative of investor buying volume, and non-short volume is representative of investor selling volume.

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