Money Flow Index Indicator For Trading
MFI above sầu 80 is considered overbought condition và below đôi mươi oversold condition. Pattern analysis can be combined with MFI lớn increase signal robustness.
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Shabbir Kayyumi
The Money Flow Index (MFI) is an oscillator that usages both price and volume to measure buying and selling pressure on a financial instrument. It is created by Gene Quong and Avrum Soudaông chồng. This indicator is also known as volume-weighted RSI
What is a ‘Money Flow Index (MFI)?
The Money Flow Index is a rather unique indicator that combines momentum & volume with an RSI formula. MFI generally favors the bulls when the indicator is above 50 và the bears when below 50.
MFI above 80 is considered overbought condition & below trăng tròn oversold condition. Pattern analysis can be combined with MFI to lớn increase signal robustness.
Construction of MFI Indicator
The MFI is calculated by accumulating positive and negative sầu Money Flow values (see Money Flow), then creating a Money Ratio. The Money Ratio is then normalized inlớn the MFI oscillator size.
Working of MFI Indicator
A divergence between the indicator và price is very important. There are two types of divergences positive divergence & negative divergence; both are very useful for trading purpose. While positive divergence indicates opportunity to lớn Buy, negative divergence indicates opportunity to sell.
• Just lượt thích the RSI, the value of the MFI ranges between 0 và 100, and uses a default setting of 14 periods for its calculation. The Money Flow Index has a high correlation with the RSI, but still differs lớn some extent as it takes inlớn account the trading volume of the instrument.
Trading Technique:
Failure Swings Trading with MFI
Apart from regular oscillator trading technique, failure swings are another occurrence which can lead to lớn a price reversal. Failure swings are completely independent of price and rely solely on MFI. Failure swings consist of four “steps” and are considered khổng lồ be either Bullish (buying opportunity) or Bearish (selling opportunity).
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Buying with MFI
1. MFI drops below đôi mươi và enters inside oversold zone.2. MFI bounces baông chồng above đôi mươi.3. MFI pulls baông xã but remains above sầu trăng tròn.4. A MFI break out above sầu its previous high is a good buy signal.
Selling with MFI
1. MFI rises above sầu 80 & enters inside overbought zone.2. MFI drops back below 80.3. MFI rises slightly but remains below 80.4. MFI drops lower than its previous low is a signal to lớn short sell or profit booking.
Using MFI in conjunction with other technical indicators helps in maximizing odds of success.
The author is Head - Technical và Derivative Research at Narnolia Financial Advisors.
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