Forex indicators with Volume
Forex indicators with volume represent one of the primary indicators of the market transactions and it also characterizes with the market participants, strength and intensity. It shows the total number of orders/contracts/shares traded within a specified time frame.
The higher volume signifies higher liquidity and higher liquidity is a sign of lower volatility, with volatility being the size of price moves.
Volume tends to increase in an uptrend direction when the price rises, and, consequently, it will decrease when the price falls. In the same way, volume increases in a downtrend direction if the prices fall, and decreases as they rise.
Money Flow Index (MFI)
This is only comparing price increases and decreases over a certain period of time, but also taking into account trading volumes.
So seems like the indicator helps to determine possible turning points and find out whether an asset is overbought or oversold. Analyzing overbought/ oversold areas.
Analyzing overbought area.
furthermore, the Currency Pair like GBP/USD is considered to be overbought if MFI rises above 80. A sell signal arises if MFI crosses the boundary of the overbought area from above.
Analyzing oversold area.
while the Currency Pair like GBP/USD is considered to be oversold if MFI falls below 20. A buy signal arises if MFI crosses the boundary of the oversold area from below.
Analyzing divergence patterns
Therefore the downtrend tends to weaken if MFI rises along with decreasing prices.
The uptrend tends to weaken if MFI falls along with rising prices.
How to calculate
And In order to calculate the index the following steps should be taken into account:
1. TP = (H + L + C) / 3;
2. MF = TP*Vol;
3. MR = Sum(MF+) / Sum(MF-);
4. MFI = 100 – (100 / (1 + MR)),
TP – typical price;
H – current high;
L – current low;
C – close price;
While MF – money flow (positive (MF+) if current TP > previous TP, negative (MF-) otherwise);
Vol – volume;
MR – money ratio.