Binary Options MFI Indicator: Money Flow Index

Binary Options MFI Indicator: Money Flow Index

Submitted by adil on Tue, 12/24/2013 - 14:16

Money Flow Indicator or MFI  is powerful and unique indicator used in binary options. It is different and better from most of the average indicators and following lines explain why.

Traders can use Money Flow Indicator to determine the total amount of money flowing into or out of any asset of interest. There are many brilliant features of the MFI that make it similar in function to famous Relative Strength Indicator (RSI).  However, the basic difference between the two is that MFI is designed to work on volume whereas RSI functions on price. Colin Twiggs is the inventor of MFI who derived its designed from an earlier indicator made by Marc Chaikin. 

According to Twiggs, the MFI can help traders to identify the creations and terminations of trends. This indicator exhibits longer time frames from the daily upwards and therefore, produces more reliable statistics and results when installed on trading charts. However, traders should use any other technical indicator to confirm the results produced by MFI.

MFI is particular a strong indicator in the case it is posing higher daily volumes further accompanied by climbing price action. This might be an indication that a bull channel is forming. On the contrary, if the MFI starts delivering low volume readings further supported by consecutive sequences of price lows then MFI can also help you to identify quality selling opportunities.

Another great feature of MFI is that when it displays values of 80 and more, it starts flagging overbought conditions for an asset. Similarly, oversold conditions are flagged when the reading is 20 or below. Similarly, a strong buying opportunity is waiting for your action if you observe that MFI has just bounced back after consistently posting readings below 20.

However, you should be extra careful in this case because price can fall by hundreds of pips under these circumstances.  Therefore, you should always try to find additional evidence supporting the predictions of MFI for the sake of your own security. It is especially important before jumping into any new trade or opening one.

Many experts recommend using RSI as the secondary confirmatory source of MFI as the readings of later track price very closely. You should seriously consider any difference between the readings of these two technical indicators. This is crucial because these discrepancies can forecast a serious change in direction of price for the asset you have selected.

For instance, there is a strong sell signal for you if you observe that RFI is posting values that demonstrate that price is still going up but MFI has begun to fall. This happens since Money Flow Indicators is actually telling that interest of buyers in applicable assets is beginning to decline.

Finally, MFI works on the principle of multiplying average price by volume and applying the results to a scale between zero and one hundred. The MFI can help you considerably to improve your success ratio in binary option trading if you manage to clearly understand its key features.