An Effective Trading Strategy Using the Money Flow Index (MFI) and 50 DMA - - palmervarty1945
Description: When IT comes to trading, ace of the most essential, yet oft-ignored piece of information is bulk. While amateurs search at just the price charts trying to project out the next probable move done wild guesses, professionals keep lead of the money that is moving in and out of a scrip to take informed trades based on strong research. Incomparable much indicator that helps us to gauge the flow of money in and out of a security is the Money Flow Index (MFI) which was developed aside Gene Quong and Avrum Soudack.
The Money Catamenia Index (MFI) is basically a volume-weighted variation of the Relative Force Index (RSI) and hence is also known by the name of volume-weighted RSI.
MFI Calculation
The Money Flow Index number is calculated done several steps. They are Eastern Samoa follows:
Step 1. Typical Price = (High + Low + Close)/3
Measure 2. Raw Money Flow = Typical Price x Volume
Step 3. Money Flow Ratio = (Positive Money Flow over 14 periods)/(Negative Money Flow over 14 periods)
Step 4. Money Run Index number = 100 – 100/(1+Money Course ratio)
MFI + 50 DMA Trading Scheme
The Money Flow Index (MFI) can be used in respective ways to generate trading signals. Hera we testament discuss a simple yet same effective trading strategy that is founded happening the 14-period MFI and a 50-day simple moving average.
When price is trading above the 50 DMA, it indicates that the upward momentum in the stock is uninjured. We consider trades only from the durable side. We go long when the 14-period MFI retraces to the 60 level from above, tests it, and one of these days closes above it.
In the higher up example of Tata Steel, we can undergo how BUY signals were generated by the 14-period MFI as it retraced back to the 60 spirit level, proved it and eventually closed above it, al while prices were trading higher up the 50 DMA.
Likewise, when price is trading infra the 50 DMA, information technology indicates that the downward momentum in the line of descent is intact. We consider trades just from the shortish side. We go short when the 14-period MFI retraces to the 40 level from at a lower place, tests it, and in time closes below it.
In the preceding example of AuroPharma, we lavatory learn how Trade signal was generated as the 14-period MFI retraced back to the 40 level, tested it and eventually squinched below it, all while prices were trading beneath the 50 DMA.
To close, we can say that MFI is a very effectual indicator that helps us to gauge the flow of money in and KO'd of a stock with the help of volume analysis. Given the fact that volume is the fuel of the securities industry that drives the prices, it is of representative importance to learn how to add up of the volume figures properly and trade profitably.
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Source: https://www.abhijitpaul.com/an-effective-trading-strategy-using-the-money-flow-index-mfi-and-50-dma/
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