Created by Dr. Bill Williams and featured in his book Trading Chaos, the Market Facilitation Index (MFI) is an indicator that uses price and volume variations to identify four possible stages of market momentum.
To add it, right-click the chart, select Add Indicator and type Market Facilitation Index:
The MFI is a measure of the strength behind price movement per volume unit, considering only intensity, which is represented by increasing and decreasing bars. This indicator does not take into account absolute values or the direction of the market.
Some technical indicators consider absolute values in their interpretation, like the Relative Strength Index (RSI), where below or above certain levels an asset is considered oversold or overbought, and the trend might be vulnerable to potential reversals. On the MFI, there are no such parameters to observe.
The Market Facilitation Index can be analyzed together with Financial or Quantity Volume indicators, and also with the Watchlist tool, considering four different scenarios:
- Increasing MFI and volume: Represents a good moment to be in the market and to follow the current trend. The number of market participants is increasing and new positions are being opened in the trend’s direction;
- Decreasing MFI and volume: Represents an uneventful market. Usually happens at the end of a trend;
- Increasing MFI and decreasing volume: According to Bill Williams, this phase is called Fake. The market continues to move in a major direction, but volume doesn't increase. Lower volume represent the speculative activities of fewer participants, masking general market sentiment;
- Decreasing MFI and increasing volume: Represents a confrontation between buying and selling forces. The volume increases, but prices don't seem to follow. Eventually, the market will choose a direction, and the movement is often abrupt, with breakout gaps or other similar indications.
To customize the indicator, right-click it and access Properties:
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