In this issue:
Main Article
Money Flow Index
Contributed by Steven B. Achelis
Overview
The Money Flow Index ("MFI") is a momentum indicator that measures the strength of money flowing in and out of a security. It is related to the Relative Strength Index, but where the RSI only incorporates prices, the Money Flow Index accounts for volume.
Interpretation
The interpretation of the Money Flow Index is as follows:
- Look for divergence between the indicator and the price action. If the price trends higher and the MFI trends lower (or vice versa), a reversal may be imminent.
- Look for market tops to occur when the MFI is above 80. Look for market bottoms to occur when the MFI is below 20.
Example
The following chart shows Intel and its 14-day Money Flow Index.
Divergences at points "A" and "B" provided leading indications of the reversals that followed.
Calculation
The Money Flow Index requires a series of calculations. First, the period's Typical Price is calculated.
Next, Money Flow (not the Money Flow Index) is calculated by multiplying the period's Typical Price by the volume.
If today's Typical Price is greater than yesterday's Typical Price, it is considered Positive Money Flow. If today's price is less, it is considered Negative Money Flow. Positive Money Flow is the sum of the Positive Money over the specified number of periods. Negative Money Flow is the sum of the Negative Money over the specified number of periods.
The Money Ratio is then calculated by dividing the Positive Money Flow by the Negative Money Flow.
Finally, the Money Flow Index is calculated using the Money Ratio.
*Excerpt taken from
Technical Analysis from A to Z by Steven B. Achelis. The Money Flow Index is available in MetaStock 11.
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Support Tip
How do I set up the MetaStock Enhanced System Tester to use no margin when back testing?
Contributed by Equis Support
For MetaStock versions 8-11
1. Open the Enhanced System Tester.
2. On the left side under "systems", highlight the test you would like to run and select New Simulation then hit Next.
3. Add your list of securities to test and hit Next.
4. In the Perform Trading Simulation screen click the More button.
5. In the Interest Rates section, change the Margin to 0.
6. Under the Margin Requirements section change the options to the settings below:
Long Initial: 100%
Long Maintenance: 0%
Short Initial: 200%
Short Maintenance: 101%
7. Hit OK to save your changes and hit Next to continue through the Enhanced System Tester and start the test.
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MetaStock Features
Trade Oracle
Contributed by Greg Allred
In the world of trading we need to keep up with the ever-changing markets. Systems that have worked in the past will not necessarily work in the future. With MetaStock, we have the capability of modifying our trading systems but rewriting a system can take time and effort. Luckily, Trade Oracle, an add-on that includes 90 ready-to-use and proven systems, has already done that work for you.
Trade Oracle has been around for a few years but is so robust that it still applies to current market conditions. In order to create Trade Oracle, the developers tested over 10,000 trading systems in order to compile the most powerful library of trading systems. Only those systems that had a greater than 50% success rate were chosen. The industry average for similar products are based on a 25-33% success rate.
In Trade Oracle, 100% of the trading systems are open code. It is very difficult to have confidence in a system you cannot see. All of the systems Trade Oracle includes will allow you to see why a particular system is winning or failing so you can make the changes necessary to build confidence and in the end, have more success.
Trade Oracle quickly shows you the top performing systems for any security. With the Best System indicator, you immediately see the top three performing systems as well as their ability to perform, just by dragging and dropping one indicator. You also have a choice of measurement methods to choose from:
- Best Equity (Points)
- Best Equity (Percent)
- Best Trade Efficiency (Points)
- Best Trade Efficiency (Percent)
Trade Oracle is the program that will help you take your trading to the next level. It will give you the tools necessary to stay ahead of the markets and be a more successful trader. For questions or interest in Trade Oracle or any MetaStock program please contact Greg Allred directly at greg.allred@thomsonreuters.com or 800-587-8014.
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