Forex & Stocks MACD Money Flow Index Trading Strategy – We will discuss the MACD Money Flow Index trading strategy, which has proven to be one of the simplest and most versatile trading strategies applicable to the Forex, stock, and cryptocurrency markets.
Once again, it’s crucial that you become proficient in the MACD Money Flow Index trading strategy because it has been proven highly effective in generating maximum profits in any market conditions.
The Money Flow Index, or MFI, is an oscillator that utilizes price and volume to gauge buying and selling pressure in financial instruments. This Money Flow Index indicator combines momentum and volume by employing the RSI formula.
One can easily calculate the Money Flow for a trading day by knowing the typical price and trading volume. Traders can compare the results between previous and current days to assess changes in value. This function is also valuable in comprehending the risks and rewards associated with investing in global equities.
If prices are higher for the current day compared to the previous day, it generates an uptick indicator, signifying a positive and buyer-driven market. So, when the MFI line is ascending and above the 50 level, it indicates that the market trend is bullish.
Conversely, if prices are lower for the current day than the previous day, it generates a downtick indicator, representing negative price movement and a seller-dominated market. So, when the MFI line is descending and below the 50 level, it signals that the market trend is bearish.
Using the MFI indicator’s method for determining bullish and bearish trends, we can employ it as a tool for entering the market. Specifically, when the MFI line crosses from below to above the 50 level, it is an opportune time to enter the market by opening a BUY position. Conversely, if the MFI line crosses from above to below the 50 level, it is the right time to enter the market by opening a SELL position.
Of course, these are fundamental rules. We require additional filters that can work in conjunction with the MFI indicator. The aim is to enhance the probability of success with every position you open.
The most suitable indicator to work in tandem with the MFI indicator is the MACD and the 100-period EMA.
- Download “TraderVersity-MoneyFlowIndexSystem” (Zip/RAR File).
- Copy mq4 and ex4 files to your Metatrader Directory …/experts/indicators/
- Copy the “TraderVersity-MoneyFlowIndexSystem.tpl” file (template) to your Metatrader Directory …/templates /
- Start or restart your Metatrader Client.
- Select Chart and Timeframe where you want to test your forex system.
- Right-click on your trading chart and hover on “Template”.
- Move right to select “TraderVersity-MoneyFlowIndexSystem” trading system and strategy
- You will see “TraderVersity-MoneyFlowIndexSystem” is available on your Chart
As you can see on this chart, this part clearly represents a bullish trend (the market price here is ascending and consistently staying above the 100-period EMA line).
One of the easiest ways to determine that the market is in a strong bullish trend is by using the MACD indicator. When the MACD Line and the Signal Line move apart from each other, it signifies a strong market trend. Conversely, if the MACD Line and the Signal Line converge and move sideways, it indicates a weak market trend, which implies a lower probability of success when opening positions.
So, as you can see on this chart, the market price here is ascending and consistently staying above the 100-period EMA line. Furthermore, you can observe that the MACD Line and the Signal Line are diverging, indicating a strong bullish trend.
The next step involves waiting for a minor correction, which is indicated by the MFI line dropping below the 50 level while the MACD Line and the Signal Line remain divergent. We will execute a BUY position once the MFI line climbs back above the 50 level.
As a general rule, it’s advisable to place a stop loss at the nearest swing low.
On the flip side, as you can see on this chart, this part clearly represents a bearish trend.
The first consideration in identifying market trends is to observe the price movement in relation to the 100-period EMA. In a bearish trend, prices must be declining and positioned below the 100-period EMA.
So, as long as prices remain below the 100-period EMA, even if they exhibit temporary upward movements, these are viewed as corrections and are expected to eventually resume the ongoing bearish trend.
So, how to Initiate a SELL Position Using the MFI Indicator Signal ?
As you can observe in this chart, the market price here is declining and consistently staying below the 100-period EMA line. Furthermore, you can notice that the MACD Line and the Signal Line are diverging, indicating a strong bearish trend.
The next step involves waiting for a minor correction, which is indicated by the rise of the MFI line above the 50 level while the MACD Line and the Signal Line remain divergent. We will execute a SELL position once the MFI line descends back below the 50 level.
As a general rule, it’s advisable to place a stop loss at the nearest swing high.
Based on everything I’ve explained, you can conclude that all the indicators within this trading strategy serve a highly effective analytical function and complement one another.
By leveraging the specific features of the 100-period EMA, MACD, and 4-period MFI, we can thoroughly and precisely assess the market. Therefore, it’s entirely reasonable to consider the MACD Money Flow Index trading strategy as an exceedingly reliable approach.
The most critical aspect is your adherence to the established trading rules. Avoid entering the market prematurely if all the trading rules are not met flawlessly.