Forex indicators with Volume
Forex indicators with volume represents one of the primary indicators of the market transactions and is characterized by 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)
MFI is an forex indicator which is designed to estimate the intensity of money inflow in a certain asset. This is done by not only comparing price increases and decreases over a certain period of time, but also taking into account trading volumes. 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.
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 overbought area from above.
Analyzing oversold area.
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 oversold area from below.
Analyzing divergence patterns
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
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;
MF – money flow (positive (MF+) if current TP > previous TP, negative (MF-) otherwise);
Vol – volume;
MR – money ratio.
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