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Money Flow Index (MFI)
The Money Flow Index (MFI) is a technical indicator that can help binary options traders to easily find profitable trading opportunities. The MFI is a popular indicator because even newcomers can quickly use it to make quality decisions.
In this article, you will learn:
- What is the Money Flow Index (MFI)?
- How to interpret the Money Flow Index (MFI)
- How to trade the Money Flow Index (MFI) with binary options
With this information, you will immediately be able to use the MFI for your binary options trading.
What Is The Money Flow Index (MFI)?
The Money Flow Index has a simple purpose: it indicates how traders currently feel about an asset. Traders can use this information to predict how this sentiment will affect future price movements.
To make this prediction as simple as possible, the MFI offers traders a clear reading that oscillates between 0 and 100. This reading, its change over time, and its relation to the asset’s price movements are all you need to make a simple trading prediction.
The MFI calculates its value in four steps:
- Typicalprice for each period: The MFI calculates each period’s typical price as the average of the period’s high, low, and close prices.
- Money flow: The MFI multiplies each period’s typical price with its volume.
- Money ratio: The MFI adds up the money flow of all periods with rising prices and divides them by the added money flow of all periods with falling prices.
- Final MFI: To make comparing the MFI’s reading easier, the indicator divides 100 by 1 plus the money ration. The result is the final MFI.
Understanding the final MFI is simple:
- A value of 100 indicates that all money has been flowing into an asset – every period had rising prices.
- A value of 0 indicates that all money has been flowing out of an asset – every period had falling prices.
- A value of 50 indicates that just as much money has been flowing out of an asset as into it.
- A value of 66 indicates that twice as much money has been flowing into an asset as out of it.
- A value of 33 indicates that twice as much money has been flowing out of asset as into it.
In short, the higher the MFI’s value, the more money has been flowing into it. The lower the MFI’s value, the less money has been flowing into it.
How To Read The Money Flow Index (MFI)
The MFI works best during a trend. When an asset is in a trend, the MFI can help you to decide whether you should still invest in the continuation of the trend or in an impending turnaround. There are three ways in which traders interpret the MFI:
Indication 1: General direction
The first thing you can learn from the MFI is its general direction.
- When the MFI is moving upwards, money is flowing into the asset.
- When the MFI is moving downwards, money is flowing out of the asset.
You can use this knowledge to predict that the asset will react accordingly:
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- When money is flowing into an asset, demand outweighs supply. The asset’s price will rise.
- When money is flowing out of an asset, supply outweighs demand. The asset’s price will fall.
Without the use of additional indicators, this is a short-term prediction. While it is true that an asset’s price will rise or fall when money is flowing in or out, respectively, the MFI’s direction alone provides you with no indication of how long this movement will last.
Indication 2: Overbought and oversold areas
A less risky, more common way of interpreting the MFI is trading its oversold and overbought areas. The logic behind this strategy is simple: since the MFI’s value oscillates between 0 and 100, the market has to be in a special situation when it nears either extreme. Such special situations provide profitable opportunities for an investment.
- When the MFI reaches a value of over 80, the asset is considered overbought.
- When the MFI reaches a value of below 20, the asset is considered oversold.
Based on these indications, traders predict that the market will now turn around:
- When the MFI reaches a value of over 80, the asset has moved upwards for some time. The MFI’s high value predicts that this movement will end soon and that the market will turn around.
- When the MFI reaches a value of below 20, the asset has moved downwards for some time. The MFI’s low value predicts that this movement will end soon and that the market will turn around.
To understand this prediction, consider that an asset’s price is solely determined by the relationship of supply and demand. Even if a company is doing well, its stock can only rise when demand outweighs demand. In this case, that might happen regularly, but it is impossible to happen always. There will be many situations in which all traders who can and want to buy the asset have bought it, and the sellers outnumber the buyers – the market has to fall, even if the asset is perfect. The same applies to situations where everyone who is willing and able to sell has sold – the price of the asset must rise.
The MFI helps you to identify these situations and profit from them.
Some traders also define different values for the overbought and oversold areas. They might only invest in falling prices when the market has moved above 90 or below 10 or even 95 and 5.
Indication 3: Divergence
The MFI’s most significant but rarest signal is a divergence from the price movement. When an asset is trending upwards, for example, it is in a zig-zag movement in a general upwards direction. It takes two steps upwards and one step down, while it climbs to continually higher highs and lows.
In an intact trend, the MFI mirrors this movement. When the market reaches a new high, the MFI is higher than at the market’s previous high. In an intact downtrend, the MFI mirrors the market, too: when the market reaches a new low, the MFI reaches a new low, too.
As soon as the MFI fails to mirror the market – as soon as it diverges from it – the trend is in trouble. While the market still managed to create a new extreme point, the sentiment has already begun to shift.
- If the market was in an uptrend, traders have lost faith in this trend. This is why less money has flown into the asset, and the MFI has failed to reach a new high.
- If the market was in an uptrend, traders are beginning to buy again. This is why less money has flown out of the asset, and the MFI has failed to reach a new low.
In both cases, the trend is doomed. It will likely turn around or at least go through an extended consolidation period.
How To Trade The Money Flow Index (MFI)
You can trade each of the MFI’s indications individually or combine them to a grand strategy. Let’s look at each possibility individually.
Trading the MFI’s direction
This is the simplest and riskiest strategy, but also the strategy with the highest potential. All you have to do is invest in the MFI’s direction:
- When the MFI is moving upwards, invest in a high option.
- When the MFI is moving downwards, invest in a low option.
This type of strategy is so easy that even complete newcomers can execute it. It can also make you a lot of money. Since the MFI is always moving up or down, you can invest at any time and make a lot of trades. If you win a lot of trades, you can also make a lot of money. Since the MFI’s direction alone is a very short-term prediction, it is best to play it safe and choose an expiry no longer than one period.
You can also combine the MFI with other indicators. These indicators filter signals, which means that you will create fewer signals but can win more trades. You are trading potential for security, which can be a smart move. For example, some traders combine the MFI with a moving average. They only invest when the MFI and the moving average are pointing in the same direction.
Some traders also wait for special events before they invest in the MFI’s direction. For example, some traders invest when the direction turns around, for example investing in a low option when the direction changes from upwards to downwards. These traders hope to increase their chances by investing right at the start of the movement but also risk to invest on a twitch that means nothings. Try those tactics with a demo account and decide for yourself whether you want to use them.
Trading the MFI’s overbought and oversold areas
This strategy is less risky but will also fewer signals. When the MFI reaches and overbought or oversold area, you invest in the opposite direction of the preceding movement.
- When the MFI reaches the overbought area, you invest in a low option.
- When the MFI reaches the oversold are, you invest in a high option.
The problem with this strategy is that long trends sometimes keep the MFI in an extreme area for a long time. On short time frames, as you use them with binary options, this risk is limited, which is why you can decide to live with it. You should be able to make money anyway. Make sure to choose a medium to long expiry to give the market enough time to turn around. Using a demo account can help you find the right timing.
Alternatively, you can also vary your strategy to sure things up a little:
- Some traders only invest when the MFI leaves an extreme area. Now the market has turned around. The problem with this strategy is that you enter the movement at a later time, which is why it is now shorter and your timing must be more accurate. Shorten your expiry and use a demo account until you know that you can time your investment well.
- Some traders narrow down the MFI’s extreme area. Depending on your preference, you might only invest when the MFI reaches a value of over 90 and below 10 or over 95 and below 5. A narrower extreme value creates more reliable but rarer signals. This trade-off can be worth it, but you should avoid overdoing it. It is better to win 8 of 10 trades than 2 of 2. Play around with your ideal value a little, and you will soon find the ideal setting for your personality.
Trading MFI divergences
This is the safest strategy, but also the strategy that will rarely create a signal. When the MFI diverges from the market, you can be sure that the current trend is in trouble. The turnaround might take some time to develop, but as long as you trade it with a long expiry, you should be able to win a high percentage of your trades.
Unfortunately, divergences are rare. First you have to find a solid trend, then you have to wait until the MFI diverges from it. Additionally, not all trends diverge, and you might have wasted your time. To balance this rareness of signals, you can invest a little more per trade, up to 5 percent of your overall account balance. As long as you know what you are doing with your expiry, you should win enough trades to justify such a high investment.
Combining the strategies
Finally, you can combine these strategies. There are several ways in which you can do this:
- Creating more signals. When you trade multiple of the MFI’s indications, you can create more signals and make more money. For example, traders of MFI divergences should always add trading the MFI’s extreme areas, at least in a narrowed down version. They have to monitor a long trend anyway, so they might as well invest when then MFI moves above 90 or below 10 and take the easy money. Other strategies offer similar possibilities. Try to find the one that fits your personal approach.
- Trading more accurately. When the MFI diverges off the market, you can use the overbought and oversold areas to find the perfect time to invest. You already know that the current movement must end, so you can search for a different time frame and monitor the MFI’s extremes. Once the market reaches an area, you know that the change in direction is near.
- Securing your signals. Finally, you can additional signals to secure your strategy. Your possibilities are unlimited. For example, some traders use candlestick formations to predict when the market will turn around once it reaches one of the MFI’s extremes. Others use a moving average and invest once it turns around while the MFI is in an extreme area. Combining multiple indicators can be a great idea to make more money with very limited effort.
The Money Flow Index (MFI) offers binary options traders a simple and effective way of trading binary options. Depending on your risk tolerance, you can trade the MFI’s direction, overbought and oversold values, and divergences from the asset’s price movement.
Follow our instructions, and you are well on your way to success with the MFI.
To find the right broker for your binary options trading, take a look at our top list.
The Top Technical Indicators for Options Trading
There are hundreds of technical indicators traders can utilize depending on their trading style and the type of security to be traded. This article focuses on a few important technical indicators popular among options traders. Also, please note that this article assumes familiarity with options terminology and calculations involved in technical indicators.
(If you are not sure whether technical trading or options are for you, check out the Investopedia Introduction to Stock Trader Types tutorial to decide your preferred style.)
How Options Trading is Different
Technical indicators are often used in short-term trading to help the trader determine:
- Range of movement (how much?)
- The direction of the move (which way?)
- Duration of the move (how long?)
Since options are subject to time decay, the holding period takes significance. A stock trader can hold a position indefinitely, while an options trader is constrained by the limited duration defined by the option’s expiration date. Given the time constraints, momentum indicators, which tend to identify overbought and oversold levels, are popular among options traders.
Let’s look at a few common indicators—momentum and others—used by options traders.
- RSI values range from 0 to100. Values above 70 generally indicate overbought levels, and a value below 30 indicates oversold levels.
- A price move outside of the Bollinger bands can signal an asset is ripe for a reversal, and options traders can position themselves accordingly.
- Intraday momentum index combines the concepts of intraday candlesticks and RSI, providing a suitable range (similar to RSI) for intraday trading by indicating overbought and oversold levels.
- A money flow index reading over 80 indicates that a security is overbought; a reading below 20 indicates that the security is oversold.
- The put-call ratio measures trading volume using put options versus call options and changes in its value indicate a change in overall market sentiment.
- The open interest provides indications about the strength of a particular trend.
Relative Strength Index – RSI
The relative strength index is a momentum indicator that compares the magnitude of recent gains to recent losses over a specified period of time to measure a security’s speed and change of price movements in an attempt to determine overbought and oversold conditions. RSI values range from 0-100, with a value above 70 generally considered to indicate overbought levels, and a value below 30 indicating oversold levels.
RSI works best for options on individual stocks, as opposed to indexes, as stocks demonstrate overbought and oversold conditions more frequently than indexes. Options on highly liquid, high-beta stocks make the best candidates for short-term trading based on RSI.
All options traders are aware of the importance of volatility, and Bollinger bands are a popular way to measure volatility. The bands expand as volatility increases and contract as volatility decreases. The closer the price moves to the upper band, the more overbought the security may be, and the closer the price moves to the lower band, the more oversold it may be.
A price move outside of the bands can signal the security is ripe for a reversal, and options traders can position themselves accordingly. For instance, after a breakout above the top band, the trader may initiate a long put or a short call position. Conversely, a breakout below the lower band may represent an opportunity to use a long call or short put strategy.
Also, in general, keep in mind that it often makes sense to sell options in periods of high volatility, when option prices are elevated, and buy options in periods of low volatility, when options are cheaper.
Intraday Momentum Index – IMI
The Intraday Momentum Index is a good technical indicator for high-frequency option traders looking to bet on intraday moves. It combines the concepts of intraday candlesticks and RSI, thereby providing a suitable range (similar to RSI) for intraday trading by indicating overbought and oversold levels. Using IMI, an options trader may be able to spot potential opportunities to initiate a bullish trade in an up-trending market at an intraday correction or initiate a bearish trade in a down-trending market at an intraday price bump.
It is important to be aware of the “trendiness” of the price moves. When there is a strong visible uptrend or downtrend, momentum indicators will frequently show overbought/oversold readings.
To calculate the IMI, the sum of up days is divided by the sum of up days plus the sum of down days, or ISup ÷ (ISup + IS down), which is then multiplied by 100. While the trader can choose the number of days to look at, 14 days is the most common time frame. Like RSI, if the resulting number is greater than 70, the stock is considered overbought. And if the resulting number is less than 30, the stock is considered oversold.
Money Flow Index – MFI
The Money Flow Index is a momentum indicator that combines price and volume data. It is also known as volume-weighted RSI. The MFI indicator measures the inflow and outflow of money into an asset over a specific period of time (typically 14 days), and is an indicator of “trading pressure.” A reading over 80 indicates that a security is overbought, while a reading below 20 indicates that the security is oversold.
Due to dependency on volume data, MFI is better suited to stock-based options trading (as opposed to index-based) and longer-duration trades. When the MFI moves in the opposite direction as the stock price, this can be a leading indicator of a trend change.
Put-Call Ratio (PCR) Indicator
The put-call ratio measures trading volume using put options versus call options. Instead of the absolute value of the put-call ratio, the changes in its value indicate a change in overall market sentiment.
When there are more puts than calls, the ratio is above 1, indicating bearishness. When call volume is higher than put volume, the ratio is less than 1, indicating bullishness. However, traders also view the put-call ratio as a contrarian indicator.
Open Interest – OI
Open interest indicates the open or unsettled contracts in options. OI does not necessarily indicate a specific uptrend or downtrend, but it does provide indications about the strength of a particular trend. Increasing open interest indicates new capital inflow and, hence, the sustainability of the existing trend, while declining OI indicates a weakening trend.
For options traders looking to benefit from short-term price moves and trends, consider the following:
Market/security is strong
Market/security is weakening
Market/security is weak
Market/security is strengthening
The Bottom Line
In addition to the above-mentioned technical indicators, there are hundreds of other indicators that can be used for trading options (like stochastic oscillators, average true range, and cumulative tick). On top of those, variations exist with smoothing techniques on resultant values, averaging principals and combinations of various indicators. An options trader should select the indicators best suited to his or her trading style and strategy, after carefully examining the mathematical dependencies and calculations.
Money Flow Index (MFI)
By publishing detailed reviews of oscillators of binary options for readers, we give you an opportunity to learn how to trade. Every newcomer of option trading makes his or her first steps in trading, studying materials on technical indicators, effective strategies and other tools. By collecting useful information on our web resource, we do our best to make your training in trading efficient. Today’s article is solely devoted to the MFI indicator.
The Money Flow Index (MFI) appears to be a technical indicator of the speed of the price movement. It’s somewhat similar to the Index of Relative Strength (RSI). Its difference from RSI is that the volume index is taken into account in the calculations. The trader Bill Williams is the creator of the indicator. He illustrated his new tool in the book “Trading chaos”. Creating the oscillator, he drew attention to the tick volume as a crucial indicator of market expectation, closely connected with the price movement.
The volume indicator has to do with new orders arriving on the market, which change the rate of movement. To put that another way, new players are entering the market, increasing the number of transactions, which shows a change in the tick volume. Thus an increase or decrease in the existing dynamics takes place.
The main advantage of the MFI is that it’s an effective tool, which provides trustworthy measuring of the strength of cash flows invested in an asset (for example, investment in a currency or a security). The cash flow index compares the positive and negative cash flows, getting an indicator that, in comparison with the price data, determines the strength of the trend. Like the RSI, the MFI takes values from 0 to 100, and it’s calculated using 14 candles.
If you’re eager to see how the MFI indicator looks on the MetaTrader 4 platform (mt4), take a look at the image below. Moreover, you can download the platform Metatrader 4 and get acquainted with the oscillator in practice.
What is the key principle of the MFI indicator?
The MFI works by the principle of comparing indicators of positive and negative cash flows of the market. If the price indicator for a particular period is higher, it stands for a positive inflow of funds into the asset. If the price indicator for a period is less, it shows that investors withdraw funds from this asset.
Tracking the price dynamics of the asset and showing information about whether trading volume is rising or falling, the MFI signals the strength of the trend to justify bidding with it, determine the beginning of a new trend or the moments when it’s better to avoid trading. It’s especially valuable in option trading because it enables traders to make high-quality forecasts of entries to the market.
The indicator happens to be is an index of the intensity of investments in financial instruments. It analyzes the price dynamics on the basis of positive and negative cash flows, and, having compared with the price, takes a value from 0 to 100, which reflects the strength of a particular trend.
When working with the Money Flow Index, one needs to consider:
- Data on the discrepancy between the indicator and the movement of prices. If prices rise, while the value of the Money Flow Index goes down (or vice versa), a price reversal is probable;
- The Money Flow Index readings above 80 and below 20 indicate the potential top and bottom of the market.
- The MFI works well on all timeframes – from five-minute to weekly charts.
The calculation formula of the MFI:
MFI = 100 – (100 / (1 + MR), where:
HIGH – the maximum price of the current bar;
LOW – the minimum price of the current bar;
CLOSE – the closing price of the current bar;
VOLUME – the volume of the current bar.
The MFI indicator signals
Divergence and convergence are phenomena of divergence in the direction of the movement of the price chart and the movement of the indicator. They warn market participants about the rapid turn of the market. Divergences and convergences between asset prices and the MFI are used as signals to buy or sell. As with other oscillators (for example, the MACD, Momentum, Stochastic, etc.), close turning points of the current trend are often shown.
- With a divergence signal that shows up in an upward trend, you should buy CALL options;
- With a convergence signal, which shows up in a downward trend, you require buying PUT options.
The MFI is utilized to define overbought-oversold zones.
- The asset is overbought when the MFI reaches 80 and exceeds it. A signal is generated for the sale of the PUT option.
- The oversold level is below the level of 20 points. It’s a signal for the purchase of the CALL option.
When oversold is reached, the market might reverse.
Do you need to install the MFI on your platform?
The MFI happens to be a classic tool for analyzing the market situation. It can be found in nearly all modern trading platforms, and it’s also available in Metatrader 4.
In order to add an oscillator to the price chart, follow these steps:
- Click the “Insert” tab in the top menu of the platform.
- Select the “Indicators” – “Volume” tab
- In the drop-down menu, which opens, choose “Money Flow Index”. The indicator has been added to the chart, so you can work.
When installing the Money Flow Index, you can utilize the setting of the value period, the default value of which accounts for 14. This value is chosen by the trader for himself, based on the strategy of work. If the Money Flow Index period is reduced, the volatility of the indicator will edge up.
If your platform does not have this indicator, you can download it here.
The use of the indicator for binary options
The Bill Williams Cash Flow Index is a very interesting indicator, which can be used in option trading. First of all, it deserves attention, because it is built by volume. It’s often considered to be more serious and useful in option trading than the RSI.
Financial markets work in the following way: the dynamics of prices are closely connected with the flow of funds. The greater this flow is, the stronger the dynamics. However, in reality it’s more and more difficult, and it’s a daunting task to determine the dynamics. Fortunately, the task was greatly simplified with the advent of the Cash Flow Index, capable of determining the direction of the movement of money. By the way, it’s worth remembering that the MFI works with teak volumes, since it’s nearly unreal to determine the actual effective volumes of options.
Among the key advantages of the indicator: it’s similar to the RSI, but, in addition to the price index, it also takes into account trading activity (tick volume), which increases the overall quality of signals; it is easy to configure (you only need to specify the period parameter); the charts are consistent, you can see the statistics of the data and assess the risks.
The indicator is widely used in binary option trading. Just like the RSI, it provides high quality signals of divergence and convergence, as well as overbought-oversold. It is worth remembering that the divergence between the price indicator and the MFI can be observed for a long time and the market might not reverse. Therefore, you need to carefully study the behavior of the indicator.
One of the main advantages of MFI is its stability. Like other indicators, it’s recommended to use it in combination with other technical analysis tools to confirm the data.
Transaction rules (screenshots)
Trading with a signal of overbought-oversold
The MFI points out to overbought-oversold zones. The asset is overbought when the MFI reaches 80 and exceeds it. You can place a PUT (down) option. In the image below you can observe the upward trend of the market on the platform Metatrader 4. This upward trend signals an early reversal of the market:
Use the opportunities of an uptrend in the price and place a PUT (down) option at a trusted Finmax broker. To do this, go to the broker finmaxbo.com website and prepare the option parameters, specifying the following parameters:
3.The amount of the transaction
4.Forecast of the price movement: DOWN
5.Click the “buy” button and wait for the results
When the MFI’s oversold level is below the 20-point level, you can buy the CALL option (up). In the image below, you can observe the downward trend of the market on the Metatrader 4 platform. This downward trend signals an early reversal of the market in another direction:
Use the opportunities of the downward trend in the price and place the CALL (up) option at the reliable Finmax broker. To do this, go to the broker finmaxbo.com website and prepare the option parameters, specifying the following parameters:
3.The amount of the bet
4.Forecast of the price movement: UP
5.Click the “buy” button and wait for the results
Trading with a signal of divergence
Divergence shows up on an upward trend, when the price goes to one side, and the indicator lines to the other, which signals an early change of the trend. The image below shows the divergence signal on the Metatrader 4 platform (you can buy the CALL option on the Finmax broker’s website, the instruction is listed above):
Trading in convergence
Convergence occurs on a downtrend, when the price on the chart sets new peaks, while the indicator does not, which points to a change of the trend. The image below shows the convergence signal on the MetaTrader 4 platform (you can buy the PUT option on the Finmax broker’s website, the instruction is listed above):
Those concerned with getting a stable income start using the principles of money management in their daily trading. However, even if you are a newcomer in option trading, it doesn’t mean that you are too green to think about money management. You really need it. The earlier you start using its principles in practice, the better your results will be.
Money management happens to be an effective strategy of account and personal finance management, capable of solving such issues as correct work with a personal account, how to save and increase funds on it. The basic rules of money management are designed to make trading profitable:
Trade with a minimum of funds: it is recommended to spend minimum amount of money on trade; put on the option about 5% of the amount of your deposit; work with options, the price of which is less than the funds on deposit; work with a reliable broker that will guarantee you the best results and profits. Follow these recommendations and you will save money on the deposit.
Transfer a minimum of funds to deposit: it is recommended to work with a minimum of funds on the account; Do not put the entire deposit on the option, because the money can still come in handy in order to recoup; you’d better organize work with a deposit more practically: allocate an unlimited limit, which you can freely implement and then do not go beyond it. Follow these recommendations and you will easily save your capital.
Trade with a minimum of assets: it is recommended, when working with options, to gradually complicate your work; start trading with 2-3 assets and then, once you feel more confident, you can increase the number of tradable assets. With this approach, you will be able to keep the situation under control, and monitor the state of the account. Follow these recommendations, and you will be able to easily organize effective work from the first steps in trading.
Trade without emotion: when starting trading options, it’s recommended to learn how to properly set yourself to work. Remember that the mindset here matters a lot – it determines the entire success of the trade. Excessive emotions will interfere with concentrating and drawing the right conclusions. When trading, get ready for a serious job, because at that moment you need analytics and rational solutions for a positive outcome. Follow these recommendations, and you will easily build up a conscious attitude to trading.
Like the principles of money management, it’s also one of the leading concepts in trading. Expiration is the moment when the option expires, when traders learn the results of their forecasts and understand whether the funds will be replenished on the deposit. Expiration directly affects the overall effectiveness of your trading. If you want the trade to bring you a stable income, wisely work with expiration.
Types of options:
- Ultra-short options (express) – 60 seconds – 5 minutes.
- Short-term options – 15 minutes – several hours.
- Medium-term options – from 6 hours – 24 hours.
- Long-term options – a day – a few months.
Is it possible to extend options’ expiration?
You can extend the expiration if during the trade you realize that you have chosen the wrong forecasts. However, not every broker allows clients to prolong expiration, keep this in mind.
If you are a beginner in binary options, first use a long expiration to minimizes the risks of this expiration.
If you are a professional in option trading, with decent trading experience, use the expiration that is convenient for you. Choose brokers, which will allow an increase in expiration during trading, which will minimize the loss of funds with an incorrect forecast.
If you want to get a quick income, use a short-term (a few hours) expiration, which will give you a quick earning in a minute. Remember that express expirations are always unpredictable.
If you want a stable income, use the opportunities of the long-term expiration, which will bring you a decent stable income.
Expiration in strategies with the MFI
The strategy for overbought-oversold signals
Short-term trading: It’s allowed, it is difficult to understand the dynamics of the market; expiration is characterized by risk and unpredictability.
Recommended expiration: From 1 hour to several hours; you will be able to analyze the situation on the market, determine the existing forces, see the development of the trend and the signals of entering the market.
Long-term expiration: It’s also recommended; it will give you good signals of entering the market that will bring you a good income.
The strategy for signals of divergence and convergence
Short-term trading: It’s allowed, due to the high degree of risk it can lead to losses, so when making a decision, be careful.
Recommended expiration: It lasts from 1 hour to several hours; it will not only provide data on trend dynamics, but also enable you to analyze the situation on the market, determine the existing forces, and see the trustworthy signals of entering the market.
Expiration for more than an hour: It’s also recommended, it will allow you to analyze the dynamics of the market, to anticipate the outcome of trading based on macroeconomic analysis (news, economics, etc.).
Expiration in the scalping strategy «Bollinger bands + MFI»
It’s an interesting scalping strategy, potentially capable of bringing you a good income. To make use of it you will require the indicators Bollinger bands (as the main signal to enter the market) and the MFI (as an additional signal).
Buying signal: when the price touches or breaks the lower Bollinger band, and the MFI is in the oversold zone (below level 20), it is necessary to wait for the formation of a bullish candle. We enter the market at the opening of the next candle (after the bullish one). The sell signal: when the price touches or breaks the upper Bollinger band, and the MFI is located in the overbought zone (above level 80), it is necessary to wait for the formation of a bearish candle. We enter the market at the opening of the next candle (after the bearish one).
Short-term trade: It’s recommended; since it’s a scalping strategy, trading takes place with this expiration; it enables you to get high quality signals, participate in a large number of transactions and get a decent income.
Daily expiration: It’s not recommended; it’s a scalping strategy, focused on express-expiration, so in this case long terms won’t bring good results.
Long-term expiration: It’s not recommended too; it’s also a scalping strategy focused on express- expiration, long-term expirations won’t bring a good result, it is difficult to follow the signal for a week, for example.
Expiration in the scalping strategy «MA + MFI»
That’s another interesting scalping strategy, characterized by high profitability. To make the most of it you require the following indicators: a simple moving average (3 SMA) and the MFI. To use this strategy is simple: you should enter the market when the MFI crosses the moving average.
The signal for purchase: The MFI crosses from below-up (below 30) moving average 3 (SMA). You need to enter the market at the opening of the next candle. The sell signal: The MFI crosses from above-down (above 70) the moving average 3 (SMA). You need to enter the market at the opening of the next candle.
Short-term trade: It’s recommended; since it’s a scalping strategy, the work takes place with this expiration; it allows you to get high quality signals, participate in a large number of transactions and get a decent income.
Daily expiration: It’s not recommended; it’s a scalping strategy, focused on express expiration, so long terms won’t bring good results in this case.
Long-term expiration: It’s not recommended too; it’s a scalping strategy focused on express expiration, so long-term expirations won’t bring a good result, it is difficult to follow the signal for a week, for instance.
Expiration in the scalping strategy «MA + Volume + MFI»
In this strategy, you can use SMA signals and also see the money supply and the price. A simple moving average (SMA) is one of the most effective technical analysis tools that determine the trend direction as well as the entry point to the market. To make use of it, you will need the following indicators: the 2 SMA indicators with periods of 5 and 14; the Money Flow Index; the Volume.
The signal for purchase: a downward trend is turning into an upward trend, the 5 SMA crosses the 14 SMA from the bottom-up; at the time of the SMA crossing, the MFI is above level 50, or crosses it from the bottom-up; the Volume signals the build-up of the tick volume compared to the previous candle. The sell signal: the upward trend is transforming into a downward trend, the 5 SMA crosses the 14 SMA from top to bottom; at the time of the SMA crossing, the MFI is above level 50 or crosses it from top to bottom; the Volume signals the build-up of the tick volume compared to the previous candle.
Short-term trading: It’s not recommended because due to high risk it can lead to losses.
Recommended expiration: from 1 hour to several hours; day trading will be more favorable; a smaller amount of market noise will enable to observe good signals of trends.
Long-term expiration: It’s not recommended too, because it’s quite difficult to observe the development of the trend and track high quality.
Using Money Flow Index to Trade Binaries
Here is yet another popular indicator that is used by many binary options traders. Like many indicators, the strategies that revolve around this indicator requires traders to have an understanding of the underlying factors that make it up. Calculations are needed, but today’s tools are already equipped with the functions of doing the calculations for the trader. However, it is still important for the binary options trader to know how the values were obtained.
The indicator that we shall discuss today is the Money Flow Index or MFI. MFI is an oscillator indicator that does not only use the price of an asset, but also its volume to measure buying and selling pressure. It is a momentum indicator, meaning it can denote price action movement and how quickly they change. The Money Flow Index is a standalone indicator, which means that traders can make informed decisions from the indicator alone.
MFI is very similar to the Relative Strength Index (RSI), which we have discussed in one of the previous articles. They are quite similar in both interpretation and calculation. MFI is a good measure of the strength of money flowing in and out of an asset, making it a rigid indicator. Because it is , it compares positive and negative money flows to identify the strength or weakness of a trend.
The Money Flow Index is therefore used to determine the conviction of a current trend. By analyzing the price and volume of a given asset, traders are able to know if the trend would be persistent, or a reversal is imminent. Because the MFI is used as a measure of the strength of money going in and out of a security, it can be used to predict a trend reversal. When traders detect this using MFI, they perform the appropriate actions.
The Money Flow Index was devised by by Gene Quong and Avrum Soudack. They intended MFI to be a RSI. The mechanics of MFI can be quite simple. It starts with the typical price for each trading period. Money flow is positive when the typical price rises, or when there is buying pressure, and negative when the typical price declines, or if there is a selling pressure. MFI shows these in terms of price and trading volume.
The ratio of positive and negative money flow is plugged into an RSI formula to create an oscillator that moves between 0 and 100. As a momentum oscillator tied to volume, the Money Flow Index is best used to identify reversals and price extremes with a variety of signals.
The MFI is often calculated using a 14 day period. Binary options traders can vary this period. All they need to do is to modify the period in the formula or in their chosen charting platform.
Money Flow Index Calculation
There are a several steps involved in the Money Flow Index calculation where the following formulae are used.
First, the typical price is the average of the high, low, and closing prices:
Typical Price = (High + Low + Close) / 3
Then, the money flow is computed after obtaining the typical price value. The money flow is basically a monetary volume because the formula involves multiplying the volume by the typical price:
Money Flow = Typical price * Volume
Money Flow is positive when the typical price advances from one period to the next and negative when the typical price declines. Money flow values are not used when the typical price is unchanged.
The Money Ratio is the third step in the calculation and is the basis for the Money Flow Index (MFI). The Positive Money Flow sum is divided by the Negative Money Flow sum to create the ratio:
Money Ratio = Positive Money Flow / Negative Money Flow
Finally, the Relative Strength Index formula is then applied to create a indicator.
Money Flow Index = 100 — (100 / (1 + Money Ratio))
The positive money values are created if the current typical price is greater than the previous typical price value. The sum of positive money over the number of periods used to create the indicator of positive money flow. The opposite is true for the negative money flow values. After these two values are obtained, the ratio is taken and the formula for RSI is retained with the obtained money ratio plugged into the formula.
Because MFI is similar to RSI, they can interpreted similarly. MFI can signal divergences and overbought/oversold conditions. The MFI can be used as call or put signals comparing it to the positive and negative divergences of the price respectively.This is because MFI can often be used to indicate an imminent reversal of a trend. If a price value is falling, but positive money flow seems to be greater than negative money flow, then there is more volume associated with daily price rises that compensate the price drops. This may suggest a weak downtrend that threatens to reverse as money flowing into the asset is “stronger” than money flowing out of it.
There are also other similarities of MFI and the RSI. As with the RSI, the MFI can also be used to determine if there is too much or too little volume associated with an asset. As with other indicators, a stock is considered overbought if the MFI indicator reaches a bearish 80 and above. On the other end of the spectrum, a bullish reading of 20 and below suggests a stock is oversold. Traders can now make appropriate actions based on this suggestions. A call option can be placed for oversold conditions and a put option can be placed for overbought conditions.
Because MFI is a version of RSI the big difference between the two is, of course, volume. Because volume is factored into the calculation of the indicator, the Money Flow Index may act a little differently than RSI. There are theories that suggest that volume leads prices. The RSI is a momentum oscillator that already leads prices. Incorporating volume using the MFI can increase this lead time.
Try out this indicator today. Select a top BO broker from the list we have compiled to start trading. Stay tuned for more helpful articles.
64# Money Flow Index Binary System
Money Flow Index with Weighted WCCI Binary Options Strategy High/Low
Submit by Leobin 21/06/2020
Money Flow Index Binary System is a trend momentum High/Low.
Time Frame 60 seconds: expires time 120-300 seconds;
Time Frame 5 min expires time 10-30 min.
Markets: Forex, Indicies, Stocks, Metals.
Money Flow Index ( periods, 4, levels 80, 20);
Moving Average 100 (high);
Moving Average 100 (low).
Rules for Money Flow Index Binary System
Trade only in direction of the trend.
Price above moving average (100) channel;
Money Flow Index above 80 level;
Weighted WCCI: line dodger blue > green line and > of 100 level.
Price below moving average (100) channel;
Money Flow Index below 20 level;
Weighted WCCI: line dodger blue
The advantage of this Binary strategy is great profitability.
This binary system is also good for trading in the forex market.
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