MFI indicator |
Bill Williams’ indicators in MT4 and MT5 are separated into a separate group. And for good reason. This is a successful combination of trending instruments and oscillators built according to unique formulas. Their performance is the subject of controversy among many traders. However, when combined with graphical analysis, they can form the basis of an effective trading system. You will learn about one of these tools, the MFI indicator, from this review.
MFI indicator: essence, formula, opening deals
The Market Facilitation Index (BW MFI) by its abbreviation is similar to another indicator – Money Flow Index, but these are different instruments. Bill Williams’ MFI (Market Facilitation Index) is an indicator that measures the market’s reaction to changes in trading volumes.
Formula indicator MFI:
MFI = (High –Low) / Volume
High and Low are the maximum and minimum values of the price of the current candle (extreme points of the shadows), Volume is the intra-candlestick trading volume.
On the chart, the indicator is located in a separate window below the price line and is a histogram.
The columns of the histogram have the following meanings:
- Green – MFI and trading volumes are increasing.
- Brown – MFI and trading volumes are falling.
- Blue – MFI is growing, volume is falling.
- Pink – MFI is falling, volume is growing.
The MFI indicator has no settings. More precisely, there is no period here, because the calculation is performed only according to the data of the current candle. No shift or “Apply to”. You can change the colors and thickness of lines, add levels. However, there is a desire – you can always make changes to the MQL code.
Interpretation of indicator signals MFI:
- Green column – strengthening the trend. New traders open deals, who increase the total volume of deals. The trend is likely to continue its upward movement. This is not a signal to enter, since the movement has already gained momentum, there is no point in “jumping into the last car of the departing train.” But if the trade is already open, the green column confirms the correct decision.
- Brown column – the trend slows down the directional movement. Traders’ interest in buying is declining. The trend is likely to turn sideways, so it is too early to open an opposite deal. It is not a fact that the uptrend will not continue after the sideways movement.
- Blue column – the trend is moving not due to the activity of traders, but due to the lack of interest from one of the parties. It can be interrupted at any minute, because this market state is precarious – the balance can be upset at any minute. Can be used for scalping.
- Pink column – activity from both sides. At this point, a trend reversal is most likely.
The MFI indicator is not an independent tool and is combined with other indicators in trading systems. The simplest options for beginners are adding moving averages or a volume indicator to the chart. A strategy with MA is used on H1-H4 timeframes, a strategy with the Volumes indicator is used for scalping on M5. The essence of the second strategy is to open a deal when both MFI and Volumes draw green columns at the same time.
Disadvantages of the indicator MFI:
- Doesn’t give clear signals to open a deal. It is a confirming indicator.
- Works only on currency pairs with high liquidity (“majors”). Ineffective in the stock and cryptocurrency markets.
You need to consider a strategy with the MFI indicator – write about it in the comments!