The revolutionary idea of Bill M.Williams reveals that trade volume is the main driver of the price’s movement. The correct analysis of the «relations» volume/price gives a clear understanding where (and how attentive!) the market is «watching» at the moment. And the MFI indicator, together with other developments of the author, has to be one more assistant to the trader in fight for profit. For example, a moving average or a combination of moving averages can help confirm the presence and direction of a trend. Although MT4 comes with a good starting line of indicators, there are a huge number of indicators available online.
The increase in volume suggests that money enters the market. An increase in MFIs implies an acceleration in price movement. In such circumstances, Williams recommended going in the direction of the market. Not surprisingly, the default color for this combination is the green bar in the MT4 MFI indicator.
Bill Williams called this value market readiness for price action. This bar appears during the decrease in trading volume against the backdrop of the rising prices. It signals about weak movement in a direction that for some reason is not supported by trade volumes. The price moves by inertia at the expense of small participants. While the battle is going on, the direction is somewhat uncertain, without a clear winner. Someone must ultimately win, and a squat can signal the imminent resumption of a previous trend or a new trend in the opposite direction.
A brown bar appears when both MFI and the volume decline. It signals that traders are hesitating and don’t want to continue the trend anymore. Several brown bars are a sign of the potential reversal of the trend. The market facilitation index indicator was created by trader and author Bill Williams, who described it as a measure of market reaction to a new volume. He does this by observing how the price moved along with the tick volume at that time, and then subsequently assigning the value of facilitating the market.
The chart below shows the indicator applied in the MT5 chart. Labor Market and Real Estate Market data was published yesterday. Markets are slowing down, so the economy is in recession. Today the traders should pay attention to the Retail sales in Canada. Click the ‘Open account’button on our website and proceed to the Personal Area.
Bill Williams advised combining MFI with Fractals and other indicators, for example, Alligator or Moving Average. As an indicator on its own the MFI is of no significant value. Nonetheless, if the current price candle’s MFI and volume are compared to the previous candle’s MFI and volume, the index starts to have some significant tradable data. Self-confessed Forex Geek spending my days researching and testing everything forex related.
Usually, the break of such a bar lets you know if this bar determines the continuation of the trend or annuls the trend. However, in reality, it is one of the hardest indicators to use. In fact, it is a relatively difficult thing to find trading signals using the indicator.
You can also compare the indicator’s bar with the preceding one to see whether conditions for trading become better or worse. This lull in movement, of course, represents a gap or a pause between two market movements, and, therefore, may portend the beginning of a new buildup of momentum. The default color for attenuation in MT4 is a brown stripe. It is not important for the MFI indicator how much the previous volume has decreased − by 1 tick or 100 ticks − it will «draw» a green bar in any case. It means that the number of the transactions made by traders increases and happens the active movement of the market in the direction of a trend. New players add the volumes to the market in hope for continuation of a tendency.
How to trade using MFI
IC Markets are my top choice as I find they have tight spreads, low commission fees, quick execution speeds and excellent customer support. Its creator, Bill Williams, considers it to be a very important indicator, but uses it integrated into his trading system. In any case, it is vitally important to know that the important thing is not the absolute values of the indicator. Indicator BW MFI has a special, rather complex philosophy. This is an excellent tool for assessing the seller/buyer balance, its effectiveness is virtually doesn’t depend on the type of the trading asset and the analysis period.
The Market Facilitation Index indicator measures price amplitude for the specified period; as a base period one tick is selected. Is calculated as a ratio of a difference of the price extreme to the volume of the bar. As mentioned above, you should look at several scenarios when using the indicator. According to Bill Williams, when the MFI and the volume are rising, you should take this is as a bullish signal.
MFI at Forex market is often used as an additional filter in the zone of the strong price levels, as well as for the analysis of volumes in complex strategies. The market is going to make the strong movement − either in the direction of a trend, or against it; it is necessary to look for confirmation from additional indicators . It is not recommended to open new deals in such a market. A few brown bars in a row − wait for the trend reversal. The situation occurs when the volume and indicator values fall simultaneously.
You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed. Calculating the market facilitation index is frankly simple. However, trading platforms, such as the one mentioned above, show their calculation automatically. In this sense, knowing how it is calculated will help us to interpret it later.
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As we can see in the above chart of Japanese candles, the indicator is similar to the stock volume. These colors are indicative colors and offered by default in the Metatrader trading platform. Next we will see how it is calculated, what each color means and how we can trade with this indicator. A pink bar, also known as squat, appears when MFI is diminishing, but the volume is growing.
Once you are done with all the checks, go to the preferred trading platform, and start trading. Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing.
Inexperienced traders are not recommended to open deals when a pink bar appears. If the volume starts to grow on subsequent bars and a green bar appears on the BW MFI histogram, you can open the transaction in the direction of the current price movement. Bill Williams argued that when MFIs and volume increase compared to the previous bar, the market moves in the same direction, and the number of market participants grows. Thus, an increase in the volume of ticks and an increase in MFIs is seen as a strong signal to continue the trend, a combination that Williams called green light for market movement.
How to use the Market Facilitation Index
As a rule, one of the orders is opened already at the next bar and then the price continues to move, at least 2-3 bars. After one of the postponed warrants opens, the second warrant needs to be deleted. However, for the first entry into the market this bar of the histogram is useless, the optimal point of the market has already been missed and it is very risky to open a deal. The Market Facilitation Index methodology offers only 4 possible combinations of price and volume. The indicator uses tick data, does not demand installation of the period of calculation . The MFI indicator provided by MT5 is different from the one provided by TradingView.
The Market Facilitation Index is the creation of Bill Williams. The indicator endeavors to establish the effectiveness of price movement by computing the price movement per volume unit. This is accomplished by subtracting the day’s low from the high and dividing the result by the total volume. Before making an investment decision, you should rely on your own assessment of the person making the trading decisions and the terms of all the legal documentation.
Unlike other indicators, interpreting this one is a relatively difficult thing since there is no specific range for you to look. Ideally, when the MFI index and volume falls, it means that liquidity in the market is fading. Therefore, if the asset has been in an upward trend, and the MFI index is declining, it is a sign that a potential reversal is about to happen.
What Is The Market Facilitation Index & How To Trade With It
However, as we have shown, it is a relatively difficult to use indicator. Open Level Up Bonus account in web or mobile version of FBS Personal Area and get up to $140 free to your account. To add it to your chart in Metatrader, click “Insert”, choose “Indicators”, «Bill Williams» and then “Market Facilitation Index”.
All information on The Forex Geek website is for educational purposes only and is not intended to provide financial advice. Any statements about profits or income, expressed or implied, do not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profit or loss, and agree to hold The Forex Geek and any authorized distributors of this information harmless in any and all ways. Therefore, for the more accurate assess to the market’s interest, a Volume indicator is added to the strategy. We open the transaction, only if the MFI signal is additionally confirmed by the dynamics on the volume histogram.