The MFI

Now that I have shown the basics of the moving averages, this next post also incorperates the MoneyFlowIndex or MFI.

In a nutshell this is a momentum indicator which also takes into consideration volume.
Is a trend moving up with little volume and likely to falter or is it moving up with heavy volume and therefore sustainable...

When used in conjunction with the moving averages it's a really nice way of confirming whether your moving average set-up is valid or not.

Having firstly identified the buy opportunity presented for example, we now turn to the MFI for confirmation.

There are a few things you need to consider whilst looking at the MFI.

Firstly.....Is the momentum agreeing with my m.a set-up
Secondly....Is it overbought
Thirdly......Is this a relatively risky trade to take or not

we can assess whether momentum agrees with the averages by looking at the position of the MFI columns in relation to the MFI moving average.
The MFI columns are coloured pink whilst the average is in blue.

If we are looking to buy the market then the column should be on or above the average and opposite for selling opportunities.

We can tell whether the market is overbought / oversold or not by looking at the column in relation to the horizontal red lines positioned at 10 and 90. If at 90 it's overbought and therefore not advisable to buy. If it's at 10 it's oversold and not wise to sell.

Then we have the magenta horizontal lines at 80 and 20.
If the columns are above 80 then it's probably too late in the immediate future to buy.
If the columns are below the 20 then it's probably too late to sell.

This does not mean that the moves will not continue, but when playing with a tight 10 tick stop as your maximum downside then you really need to time the entry quite well and this does help identify whether a move is likely to take off immediately of whether it's likely to stall.

I will explain in more detail later on but for now notice what happens to the indicator when it hits the high points and low points. It usually comes back to a more realistic position. Furthermore when it crosses above and below the blue average attached to the indicator it adds confirmation to a likely move.

It does look a little clumsy on this chart. We will study it further later on when we come to the one minute chart which is a far superior representation of a really good tool..