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Market Facilitation Index (MFI)
"The MFI is a measure of the m arket's willingness willingness to move the price. I cannot overemphasize the value of this indicator. indicator. It is a more truthful measure of m arket action than any stochastic, RSI RSI (Relative Strength Index) or other momentum indicator." indicator." Bill Williams In his bo ok "Trading Chaos " Bill Bill Willi Williams ams intro duces a new metho metho d of combining price price and volume in order t o see t he true market development. development. The key role belongs t o unique unique indicator indicator called called the Market Market Facilitation Index (MFI). BW MFI MFI (Bill Willi Williams ams Market Facilitatio n Index) uses a s imple imple f or mula mula and allows allows t o evaluate the ef f iciency iciency of the market market price moveme movement. nt. What does ef f iciency iciency means means here? An eff icient icient market market is seen as liquid liquid and active market where where all all types of invest invest ors (long- term and and short - term traders) are actively involved in buying & selling. Should the interest interest o f one large group of invest invest ors vaporize, the volume volume drops and f rom that point ef f iciency iciency of the market market goes down as well. well.
How t o int int erpret BW MFI MFI can be used f or all time time f rames rames f rom 5 minutes minutes up to daily daily and weekly weekly f rames. rames. Current BW MFI MFI has been coded f or MetaTrader 4 platf orm, however, however, ot her trading platf platf orms might might also have this indicato indicato r among among t rading rading to ols. To call call it o n MT MT 4 charts: Insert -> Indicators-> Bill Williams -> Market Facilitation Index If not availabl available, e, you can download t he same indic indicato ato r here: BW MFI.mq4
and place it in your inst alled MT 4 f older inside /Experts/Indicators .
With BW MFI we don’t analyze abso lute values o f the indicato r (be it 0.0030 or 0.0055), but rat her f ocus on changes of price at any single moment. To ease the t ask o f evaluating thos e changes, in MT 4 we have MFI bars colo red in 4 dist inctive colors : All that’s lef t to do is to know ho w to read and int erpret dif f erent colors given by MFI indicat or.
How t o read BW MFI indicator colors T here are 4 pos sible combinatio ns o f MFI and Volume relatio nship, which are color ed in BW MFI indicato r with the f ollowing mess age to send: MFI bar color Green Brown
Conditions (MFI up, Volume up) (MFI down, Volume down)
Bar Name by B.Williams Green Fade
Blue
(MFI up, Volume down)
Fake
Pink
(MFI down, Volume up)
Squat
Green MFI bar tells that the market is already on t he move. Theref ore, t raders’ best immediate reactio n sho uld be to go with t he market, whatever direction it is heading. On such green day you would already want t o have an open trade in the direction o f the market move.
If there were any trades lef t o pen, make sure they are not going against t he market, ot herwise t hey risk to bring loss es. A Green MFI signif ies t hree things: • there are more t raders entering the market; • tho se t raders are biased in the direction t he market is moving (the last price bar on t he chart); • the market picks up speed. Brown MFI bar (called Fade) appears when market s tart s to f ade – lo se interes t in advancing f urther. Of ten t his can be obs erved at t he end of a trend. Traders who used t o actively participate in the market are no longer interest ed in est ablishing new pos itions at current price, which causes t he market to f ade (both volume and MFI decrease). Bill Williams brings as an example Elliot t waves , where the f ist Elliot t wave in the sequence has a f ade to p - little action is happening, and the excitement of the market is dwindling. Yet, he s ays later, that boredom o f ten precedes t he beginning of a big move. "So the very t ime when the market is mos t bo ring is exactly the t ime when a goo d trader must be o n guard f or any sign that momentum is building" – says Bill Williams. Several brown bars in a row can perf ectly illust rate t he period where f ading excitement is slo wly building the base f or a new market move. Blue MFI bar (called Fake) has been given its name f or a reaso n. When market makes a pro gressive move, but this move is not s upported by the volume (f or any reason), this pro vides a clue that t here are probably no real interest in the move yet, while certain group o f market participants is t rying to cont rol and manipulate t he market t o their advantage. T his is the po int when newbies can be easily scared out by sudden change in the dominant t rend, which will cause t hem to close t heir exist ing trades and att empt to run with t he new trend, which to their huge disappointment will be over as f ast as it began, since it was not a real move backed up by volume, it was a "f ake" move, cont rolled by a small but s tro ng group of large market players. Pink MFI bar (called Squat) appears at the end o f each trend. Bill Williams calls it "the s tro ngest pot ential money maker" of the 4 s etups. T he squat bar is marked by an increasing volume yet t emporary s talling price movement. The key f acto r is: there are many participants entering the market, all of them are enthusiast ic about s elling & buying (volume rises), but bef ore t he battle between buyers and s ellers f inds a winner, the price movement st ops – market so rt o f squats bef ore leaping fo rward. T he breakout is going to be either s een as a reversal, or a cont inuatio n of a current trend. Either way, it is a goo d st arting point t o get in at t he beginning of a trend.
