Even if it does not have an fuctioning quality in the market of Forex, the Money Flow Index (MFI) indicator that is one of the most important indicators after the Moving Average, and is generated by considering volüme factor of Relative Strenght Index (RSI), has a similar characteristic to be used with Relative Strenght Index (RSI).
The level of 20 and 80 are important numbers for us in the process of interpreting an indicator. The relevant indicator has been emerged by considering the 14 – periods active region.
The 14 – periods active average and 20 and 80 points, which are included in the indicator are the standart concepts of the indicator and have an flexibility of to be changed in order to that to be appropriate the price of financial intrument.
For example, in the short period of purchasing – selling process, trader consider the 14 – periods active movement as 9 – periods active movement in order to have fast decisions. Or, in order to maximize the benefit comes from return, trader may consider the level of 50 as controlling point in addition to levels of 20 and 80.
In order to reach Money Flow Index indicator from the Metatrader platform, you can use Indicator and Volumes tabs which are under the category of Tools and in the list of Insert.
Before adding it to the platform, the referance levels of 20 and 80 in the ‘’levels’’ sections, which are need to be followed with the number of 14 nd returns that are shared toward how many prices from ‘’Parameters’’ need to be add to computing of average, can be revised whenever you want to make it appropriate for financial instrument that is relevant to decision of purchasing – selling. Hoewever, it can not be performed any chance in the field of training, the standart pattern will continue.
The Interpretationf of MFI Indictor
The most important thing that should be considered about MFI indicator in the process of making decision about purchasing – selling is the reaction will be possibly happen according to referance levels of 20 and 80. To increase of MFI indicator to the above of the level of 80 called OVERBOUGHT, while to decrease of MFI indicator to the below of the level of 20 called OVERSOLD. The placement of financial instrument in the region of overbought or oversold may have a signal for possible return, but the signal itself is not enough for the movement of returning.
***In the condition of that MFI indicator go to above the level of 30 by returning from the region of oversold or returning of it from somewhere close to the level of 30 may bring about expectation of positive pricing behavior toward financial intrument. By this idea, the financial instrument which has a need of increasing toward the referance level of 80 may want to be involved in upward movements.
***In the condition of that MFI indicator go to below the level of 80 by returning from the region of overbought or returning of it from somewhere close to the level of 80 may bring about expectation of negative pricing behavior toward financial intrument. By this idea, the financial instrument which has a need of decreasing toward the referance level of 80 may want to be involved in downward movements.
The price – indicator mismach may be observed in the indicator which help us to see extreme purchasing – selling points.
This concept is called divergence. It is described like that the negative signals is not supported by the price of the financial instument according to referance levels of 20 and 80.
In this period, which called positive or negative mismatch, out main focus is the price of financial intrument. The relevant mismach remove the purchase – sell signal and the safe perspective in the volumetric movement untill the price and the indicator become compatible.
As it is seen it the graphich we use above, the price is continues to try to increase despite of MFI indicator’s return from the level of 80. That is, the financial instrument in the extreme purchasing region is supported in terms of volüme. The matching of volume – price region help the problem to be solved.
So that, if the indicator that help us to see extreme purchasing – selling regions are used by themselves, the periods of mismaching may influence trader’s performance negatively. So that, none of indicator should be used by itself.
***As it is just same in all indicators, the most important thing should be known about MFI indicator is that whether the decision we have made about purchasing – selling fits with the trend image. For example, the purchasing transaction that we made in the trend of increasing may help the minimize the risk when we condider the trend factor according to selling trasaction. On the contrary, the transactions do not fit with trend may brings about increased risk because of the trend factor.
As it is seen in the grraphic we use, the purchasing movement in the trend of decreasing is supported by selling signals in the increasing trend along with MFI indicator. In addition to that, the psychological factors in possible winnings may generate a press element on the decision of investment. So that, along with Ed Seykote slogan, which point out that the trend is our friend unless it chance, we can say that we should be in trend tendency.