Money Flow Extended

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Money Flow Extended (MF)

Definition

The Money Flow Extended (MF) indicator brings together the functionality of the Money Flow Index indicator (MFI), a tool created by Gene Quong and Avrum Soudack and used in technical analysis for measuring buying and selling pressure, and The Relative Strength Index (RSI), a well versed momentum based oscillator created by J.Welles Wilder Jr., which is used to measure the speed (velocity) as well as the change (magnitude) of directional price movements.

History

As the Money Flow Index (MFI) is quite similar to The Relative Strength Index (RSI), essentially the RSI with the added aspect of volume, adding a Moving Average, divergence calculation, oversold and overbought gradients, facilitates the transition from RSI, making the use of MFI pretty similar.

What to look for

Overbought/Oversold

When momentum and price rise fast enough, at a high enough level, eventual the security will be considered overbought. The opposite is also true. When price and momentum fall far enough, they can be considered oversold. Traditional overbought territory starts above 80 and oversold territory starts below 20. These values are subjective however, and a technical analyst can set whichever thresholds they choose.

Divergence

MF Divergence occurs when there is a difference between what the price action is indicating and what MF is indicating. These differences can be interpreted as an impending reversal. Specifically, there are two types of divergences, bearish and bullish.

Bullish MFI Divergence – When price makes a new low but MF makes a higher low.
Bearish MFI Divergence – When price makes a new high but MF makes a lower high.

Failure Swings

Failure swings are another occurrence which can lead to a price reversal. One thing to keep in mind about failure swings is that they are completely independent of price and rely solely on MF. Failure swings consist of four steps and are considered to be either Bullish (buying opportunity) or Bearish (selling opportunity).

Bullish Failure Swing

1. MF drops below 20 (considered oversold).
   
2. MF bounces back above 20.
   
3. MF pulls back but remains above 20 (remains above oversold)
   
4. MF breaks out above its previous high.
   

Bearish Failure Swing

1. MF rises above 80 (considered overbought)
   
2. MF drops back below 80
   
3. MF rises slightly but remains below 80 (remains below overbought)
   
4. MF drops lower than its previous low.
   

Summary

The Money Flow Extended (MF) can be a very valuable technical analysis tool. Of course, MF should not be used alone as the sole source for a trader’s signals or setups. MF can be combined with additional indicators or chart pattern analysis to increase its effectiveness.

Inputs

Length

The time period to be used in calculating the MF. 14 is the default.

Pivot Loopback

After how many bars you want the divergence to show, on the scale of 1-5. 5 is the default.

Calculate Divergence

Calculating divergences is needed in order for divergence alerts to fire.

Moving Average section

You can learn more about the inputs in the "Moving Average" section in this Help Center article.

Style

MF

Can toggle the visibility of the MF as well as the visibility of a price line showing the actual current value of the MF. Can also select the MF Line's color, line thickness and visual style.

MF-based MA

Can toggle the visibility of the MF-based MA as well as the visibility of a price line showing the actual current MA value. Can also select its color, line thickness and line style.

MF Upper Band

Can toggle the visibility of the Upper Band as well as sets the boundary, on the scale of 1-100, for the Upper Band (80 is the default). The color, line thickness and line style can also be determined.

MF Middle Band

Can toggle the visibility of the Middle Band as well as sets the boundary, on the scale of 1-100, for the Middle Band (50 is the default). The color, line thickness and line style can also be determined.

MF Lower Band

Can toggle the visibility of the Lower Band as well as sets the boundary, on the scale of 1-100, for the Lower Band (20 is the default). The color, line thickness and line style can also be determined.

MF Background Fill

Toggles the visibility of a Background color within the MF's boundaries. Can also change the Color itself as well as the opacity.

Overbought Gradient Fill

Can toggle the visibility of the Overbought Gradient Fill. Can also select its colors combination.

Oversold Gradient Fill

Can toggle the visibility of the Oversold Gradient Fill. Can also select its colors combination.

Precision

Sets the number of decimal places to be left on the indicator's value before rounding up. The higher this number, the more decimal points will be on the indicator's value.