Forex mfi strategy

The Chaikin Money Flow indicator was developed by trading guru Marc Chaikin, who was coached by the most successful institutional investors in the world.

This comprehensive indicator can be combined with several different trading strategies. The reason Chaikin Money Flow is the best volume and a classical volume indicator is that it measures institutional accumulation-distribution. Typically on a rally, the Chaikin volume indicator should be above the zero line. Conversely, on sell-offs, the Chaikin volume indicator should be below the zero line. If you can master volume analysis, a lot of new trading opportunities can emerge. The smart money is present even in the FX market and their footprints are still visible.

With all their efforts to hide their trading activities, the Chaikin Money Flow will give you a window into the volume activity the same way you have when you trade stocks. To really understand what makes a price pattern work, we really need to understand the market forces behind the price chart. In simple terms, the interaction between traders placing buy and sell orders is the real force that drives the price.

In other words, this is what we call the money flow. Understanding the money flow will give you a better understanding of how the market really works. Unfortunately, the center of attention of the majority of traders is on the price the Effect and not on the money flow aka the Cause. The money flow index gives dumb money the chance to become smart money.

As a final warning, be also aware of the shortcomings of relying solely on the MFI indicator. All sentiment indicators have the problem of generating false buy and sell signals. Once you understand the game behind the price action a new reality will be accessible to you. Please Share this Trading Strategy Below and keep it for your own personal use! Thanks, Traders! We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more.

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Shooting Star Candle Strategy. Swing Trading Strategies That Work. Please log in again. The login page will open in a new tab. To make this prediction as simple as possible, the MFI offers traders a clear reading that oscillates between 0 and 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:. Without the use of additional indicators, this is a short-term prediction. A less risky, more common way of interpreting the MFI is trading its oversold and overbought areas. Such special situations provide profitable opportunities for an investment. 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.

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. 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.

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. The big difference is, of course, volume.

Theories suggest that volume leads prices. RSI is a momentum oscillator that already leads prices. Incorporating volume can increase this lead time. Quong and Soudack identified three basic signals using the Money Flow Index. First, chartists can look for overbought or oversold levels to warn of unsustainable price extremes.

Second, bullish and bearish divergence can be used to anticipate trend reversals. Third, failure swings at 80 or 20 can also be used to identify potential price reversals. For this article, the divergences and failure swings are be combined to create one signal group and increase robustness. Overbought and oversold levels can be used to identify unsustainable price extremes. Strong trends can present a problem for these classic overbought and oversold levels. Quong and Soudack recommended expanding these extremes to further qualify signals. A move above 90 is truly overbought and a move below 10 is truly oversold.

Moves above 90 and below 10 are rare occurrences that suggest a price move is unsustainable. However, chartists can use the StockCharts. Links to such scans are provided at the end of this article. The preceding declines were sharp enough to produce these readings, but the oversold extremes suggested that these declines were unsustainable. Oversold levels alone are not reason enough to turn bullish.

Some sort of reversal or upturn is needed to confirm that prices have indeed turned a corner. JBHT confirmed the first oversold reading with a gap and trend line break on good volume. The stock confirmed the second oversold reading with a resistance breakout on good volume. Extremes in MFI suggested that these advances were unsustainable and a pullback was imminent.