The Money Flow Index (MFI) is a forex technical indicator that generates oversold or overbought signals using prices and volume data. It is also called the volume-weighted Relative Strength Index , as it includes volume, unlike RSI indicator, which only incorporates cost. A divergence between the forex indicator and price is noteworthy. As an example, if the arrow rises while the chart price is falling or flat, the price could grow.
Working of forex Money Flow Index indicator
The Money Flow Index forex indicator illustrates the flow of money in and out of an instrument for forex trading. The arrow, however, uses trading volumes as the primary element. This indicator oscillates like the traditional RSI, the Relative Strength Index.
It creates overbought and oversold Forex trade; the indicator also generates divergence and convergence-based entry signals for trading. Therefore, traders can benefit from trading using both forex strategies and convergence.
The Money Flow forex indicator is suitable for both advanced and new Forex traders. New traders can profit from oversold and overbought trading signals. On the other hand, advanced traders can benefit from the convergence and divergence trade and employ a complicated Forex strategy for trading. This indicator is effective across all intraday timeframes and on daily, weekly, and monthly charts.
Money Flow Index Indicator MT4 Trading Setup
The above chart illustrates how the Money Flow Index indicator works. It is an oscillator and plots values in the BLUE line. Additionally, the indicator shows the higher level of 80 and the lower level of 20 and displays them in an additional indicator window.
Overbought and Oversold Levels
Forex traders see the above 80 as oversold and the 20 levels as overbought. Therefore, technical traders can use overbought or oversold trading strategies like other oscillators.
If the indicator is at an overbought value of 80, traders should anticipate the price falling and turning Bearish. Therefore, traders should make a SELL trade using a stop loss higher than the previous swing high. The most profitable way to profit is to hold off until prices reach oversold levels.
In the same way, when the indicator is at an oversold value of 20, traders must expect that the price will be Bullish. Therefore, traders should start trading with the BUY position, using a stop-loss lower than the previous low of the swing, and leave at the signal opposite.
This EURJPY H4 chart illustrates the divergence and convergence of trading signals. This indicator offers the most reliable trading signals since the mismatch between indicators and prices often occurs and occurs in conjunction with highs. Therefore, Forex technical traders may employ techniques for trading that use
If the price keeps making higher highs and the indicator makes lower ones, it could indicate a reverse from bearish to bullish. Thus, Forex traders can enter a SELL position by placing an order to stop the trade above the previous high on the swing.
If the price makes lower lows while the indicator has higher lows, the price has reverted between Bearish and Bullish. Thus, traders can open a BUY order and then trade by placing a stop loss just below the previous low of the swing.
Inputs of The Money Flow Index MT4
The following table shows the input parameters of the money flow index. Feel free to experiment with the settings for better results.
The money flow MT4 gives technical trading signals using a variety of methods. But, to get the most effective results, conditions of overbought or oversold and convergence and divergence should be verified using price action and additional technical indicators. This indicator gives reverse signals, which can be prone to false signals. Therefore, they must be confirmed using other tools for technical analysis and channels, support, resistance, and trendlines.