In trading, a variety of tools are used. The most popular among traders are technical indicators that help them in trading in the financial market and during the analysis of market movements.
Professionals, developers and experts, such as Bill Williams and other founders of trading, have specially created many tools for traders and investors to facilitate their trading on the exchange. In the conditions of the modern market, which periodically changes, various classic indicators are periodically updated, and their settings are selected taking into account new parameters.
Description of the MFI indicator
Bill Williams created several tools for traders: the Alligator, Fractals, MFI and others indicator. All these tools are widely used in trading not only by traders, but also by investors. The MFI (Market Facilitation Index) indicator is translated as the "market facilitation index", which allows you to assess the state of the market, the mood of its participants and the direction of quotes. With its help, you can analyze the movement of pulses, as it is a trend tool.
The formula of the MFI indicator is presented below.
The index is independently capable of capturing any change in the market price at minimum values. Each point and tick is controlled by the indicator and allows you to efficiently calculate values ​​taking into account the time interval, which is determined by the timeframe.
Any market mood, increasing demand, interest or offers from sellers and buyers, as well as their decrease, is immediately displayed in the instrument reporting. Traders and experts, based on the obtained indicators, conduct an analytical forecast of market movement and make decisions on opening positions or, conversely, closing them.
The MFI indicator is set in a separate window under the market price chart and looks like a multi-colored histogram.
Tool Column Values:
- Green color - increase in the market of volumes and MFI.
- Blue - decrease in volumes with the growth of MFI.
- Brown is a decrease in the volume and MFI markets.
- Pink - increase in volumes with a decrease in MFI.
It is not necessary to use standard colors, you can choose the color scheme that the trader likes. For example, in the settings you can set black, white, raspberry, blue and others, most importantly, you need to know what they will mean. Suppose a trader chooses a blue color to lower volumes and increase MFI, and yellow to simultaneously increase these indicators.
Conditions of use
It is believed that this index is specifically designed for the stock market. However, many traders also use it in Forex trading. The most complete information can be obtained on the MFI indicator on the footprint chart, since volumes are immediately displayed on it. The main condition for trading is the presence of a trend in the market, which he himself shows. This is a fairly effective tool that allows you to record any movement of quotes.
In addition, the market easing index is great during analytics to predict possible changes in market movements. With its help, experts learn about the situation on the exchange, make calculations and suggest further price movements. For beginners, the main thing in working with the index is to understand how to use the MFI indicator and apply it correctly in trading. Let's consider it further.
Using the indicator in trading
To make a profit on transactions, you need to carefully study the features and parameters of the instrument. If it is used incorrectly or incorrectly to decipher its indicators in trading, then losses will simply not be avoided.
First of all, you need to understand the meaning of the index columns and with their help correctly analyze the market condition. And then it will already be possible to make a decision to open a position or to close it, if the order is already in operation, and make the necessary calculations of the lot volumes, the protective stop-loss order and profit-taking profit-take-profit.
Green bar indicator
The multi-colored histogram very often confuses beginners, and they do not know how to use the MFI indicator. Actually quite simple, but you need to know the principle of coloring each column.
The green line of the index informs the trader that there is quite a strong movement in the market. At the same time, the development of the impulse is very rapid. If we consider the market situation, it can be noted that it was at this time that new players came to the exchange, as a result of which the volume of open positions increased.
All of them open orders in the direction of the trend movement. When three consecutive green columns are formed on the indicator, you need to be very careful, as the market is already saturated and in the future there will definitely be a recession. This is especially true for short positions on lower timeframes.
Column Brown
When the indicator line is painted in this color, the current market situation is completely opposite to the green column. That is, at this time there is a decline in market movement. Bill Williams called this column “fading,” which is fully consistent with its meaning.
The market impulse or trend begins to weaken, players lose interest in the situation and the movement on the exchange gradually "dies out". Most players prefer to close their positions, but there are also speculators who are waiting for the resulting drawdown.
However, it is worth considering that in the case of the second decision-making option, it is necessary to have a sufficient deposit amount, as the minus on the transaction can be large. It is strongly discouraged to open new orders. After the formation of several brown columns of the MFI indicator, in most cases a reversal of market movement occurs.
Indicator line blue
Such a column is formed when trend movements occur in the market at small volumes. That is, although there is a valid impulse on the exchange, it does not cause speculators' interest for any reason. As a result, index indicators are growing, but volumes are decreasing.
Usually a blue column appears when large market participants and market makers are present in the market. They are trying to lure medium and small players onto the exchange, contrary to the real market trend.
Professionals advise not to open orders at this time, as the trend movement was created artificially by large market participants. In the near future it will turn in the opposite direction from the positions of traders and, accordingly, they will receive losses. Bill Williams called this column "fake", which corresponds to the current market situation.
Pink bar indicator
Bill Williams gave him the name "squat." It appears in the instrument as a harbinger of the imminent end of the current market trend. At this time, the movement of quotations on the exchange begins to slow down and a consolidation zone forms with a narrow range. Traders, sellers and buyers are fighting among themselves, defending their position. At the same time, their activity is quite large, and as a result, a movement reverses or a new impulse is formed.
Professionals consider this moment the most favorable for opening new positions. However, to be completely sure, you need to check the accuracy of the signal using additional tools. The "crouching" column tells the trader that he will be able to start quickly in the near future.
Setting the BW MFI indicator
This trading tool is available on all popular trading platforms. How it works and how signals are generated on it, as well as the description of the BW MFI indicator was discussed in our article above.
On the MetaTrader 4 and 5 versions, it is located in the “Indicators” section, and then you need to go to the Bill Williams tab and select it (“Insert” - “Indicators” - “Bill Williams” - Market Facilitation Index). The beginning of the name BW is the initials of the author and creator of this tool, since there is another type of index - MFI (Money Flow Index). Therefore, in order not to confuse them, this prefix was added.
The color of the columns can be selected independently or use the standard settings. The remaining indicators should be left recommended by the developer, of course, if this does not contradict the trading strategy of the trader.
Application in trading in the financial market BW MFI
Based on this indicator, professionals have developed many trading strategies. They differ slightly in the values ​​of the indicators, but have common characteristics that are based on the signals of the columns. Therefore, to understand how to use the BW MFI indicator, it is enough to understand their meanings. In most methods, indicator signals are filtered out with additional tools. For example, you can add Parabolic, Moving Averages, Alligator, and other indicators to the chart.
Entrance to the market for opening a deal occurs on the pink column, and other instruments confirm or refute this signal. The general market situation can be monitored throughout the histogram. And also with the help of it you can analyze changes in market quotes.
Many traders use it in short-term trading, however, it gives the most profitable signals on chart D of the BW MFI indicator. One can find a simple explanation for this: the smaller the timeframe (M 1, M 5, M 15), the more various interference and noise occur on the market that create false impulses. The older the timeframe (H 4, D 1), the quotation chart is smoother, and false signals are practically not displayed on it.
In addition, the BW MFI Vertex Fx indicator allows, as the name implies (Vertex Fx - the tip of the Forex trading system), that it will be possible to get maximum profit, since all changes occur in ticks. This approach of quotation analysis creates greater accuracy of values.
Triple trading tool - MFI, CCI, OBV
To trade on the financial market, the experts developed the “3 in one” indicator: CCI MFI OBV, which works at the intersection of the values ​​of these three instruments, if taken separately. By and large, this is a real automated robot adviser that sends a signal to open positions after all the indicator values ​​- OBV (volumes), CCI (market oscillator) and MFI have reached the most suitable indicators.
A trader who uses this adviser in trading does not have to make calculations on his own, analyze statistical data and examine indicators in each case. Everything happens in automatic mode, and the speculator is provided with a ready-made result - a signal to open / close a position.
Trading Strategy Based on MFI
To use this technique, you need to trade on the daily chart, that is, the timeframe D 1 must be set. The market movement always reverses on the pink columns of the MFI indicator. Therefore, the trader should carefully monitor all changes in market quotes, and as soon as such a column appears, you need to be ready to make a decision.
Strategy Trading:
- As soon as a pink line appears in the indicator values, you need to open two positions with pending orders - for sale and purchase.
- Pending orders must be placed near the extremes of the pink column. Most often, the market reaches minimum or maximum values ​​near this line, touches a pending order and continues its movement.
- A failed pending order must be deleted.
Usually, after a position is opened, a green column appears in the indicator values, which informs the trader about the right direction. As a result, the speculator manages to enter the market at the very beginning of the impulse, when other participants are just swinging, and its major players have not begun to move the trend.
Gradually, volumes begin to increase in the market, the interest of other bidders increases. Initially, quotes will move in a narrow range, and then there will be a sharp jump, and prices will gain momentum at high speed, that is, a strong impulse will begin.
Conclusion
The MFI indicator is an excellent assistant for the trader. It allows you to receive the most accurate signals for entering the market in the analytical forecast of quotes. However, as its creator Bill Williams advises, it must be used in trading with other tools that will help increase trading efficiency.