# A Profitable Money Flow Index Trading Strategy

Hello, this is Mark from Tradinformed.com. And welcome to this video on the Money Flow

Index Trading Strategy. Now in this video I’m going to describe the

Money Flow Index or MFI. I’m going to look at a trading strategy using

the S&P 500 and will describe the results that I’ve got and show the results of a backtest

of this trading strategy. So the first things is: What is the Money

Flow Index? I’ve got it here, showing on the chart. This is the S&P 500 and at the bottom of the

chart we have the MFI. The MFI is quite interesting, and relatively

unusual for technical indicators, because it uses volume in a nice way. If you look at the indicator at the bottom

of the chart, it looks fairly similar to other oscillators. And this is because it incorporates Volume

into the calculation, which is quite similar to the RSI: The Relative Strength Index. So what we get is a sort of crossover, combination

indicator that has volume, and uses the significance of volume data, but it also puts it into a

nice oscillator that ranges from 0 to 100 and we can use it to trigger entries and take

profits. OK, so the trading strategy that I am gong

to use today is going to use the MFI both to enter and exit trades. And we’ve also got this red dashed line on

the chart here which is an Exponential Moving Average. Now we are using the EMA as a filter: Long

trades only above the EMA and Short trades only below. I like to use EMAs quite a lot in my trading

strategies as a simple way to define the trend. OK, so we’re using this lower line here on

the MFI as an entry trigger. So we have a cross above this lower line,

so you can see we have a green arrow. And this trade is going to follow all the

way up here. So we’re opening it in February and it is

going to follow all the way up until June and we have a Profit Target which was hit

here. And we’re actually closing this trade in 2

parts which is a slightly more advanced way of managing the trade. The first part of this trade is going to be

closed using a profit target and that profit target is set based on the ATR: the Average

True Range. And the second part I am using the MFI, so

once we’ve hit our profit target and taken some money off the table, then we’re going

to look at the MFI. And in this case it closes straight away. Because I’m using the MFI, anything in this

red zone here above this upper line, as a signal to close the trade. So we’ve taken our profit target, we’ve made

a very nice profit here and the next period, well we’re already in the closing zone, so

we can close it on the next period. Short Trades are going to be done in exactly

the same way. Just to remind ourselves, in this case I’m

using 2 line for the MFI. These can be refined, but these are the lines

I’m going to talk about in the video today. Right, so the backtest of the trading strategy

that I’m going to use is a Tradinformed Backtesting Spreadsheet. And there are a variety of these spreadsheets

that are available on the Tradinformed website. There is a link on the screen for more information. This particular one, as I was describing earlier,

is using a slightly more advance form of trade management. We are opening the trade, or we are replicating

the effect of opening the trade in 2 separate positions. And so we can control them in different ways. We can set different profit targets and we

can set different ways of closing each one of these positions. So this is the standard set-up for a Tradinformed

spreadsheet. Over here, on the left, we have the data. Open, High, Low, Close plus the Volume, which

is of course necessary to use the MFI. In the middle here, I’ll just open these out,

we have the, in white here, we have the technical indicators that I’m using for this particular

backtest. So we have the first set of columns is the

MFI. We’re using an EMA: Exponential Moving Average

and the ATR. So it is just 3 technical indicators. Now the calculations for these technical indicators,

for the MFI came from a spreadsheet that I produced which is here. And it comes from an eBook, which is available

in the Amazon Kindle Bookstore. And there is information on the screen if

you want information about how to calculate a variety of different technical indicators. They are all in Excel, the eBook gives explanations

and examples of how to use it. So we’ve got the MFI here. We’ve got Value Charts, Ichimoku, Heiken Ashi. A wide variety of different indicators and

chart patterns that can be programmed into Excel. OK, so back to the backtest spreadsheet. Get rid of this again. To hide it, we don’t need this at the moment. So they are the 3 indicators, the MFI, EMA

and ATR. So the bit over here in green and this reddish

colour are the long and the short trades. And this is the actual backtest model. If I scroll down here, we’ll see the different

trades being opened and close and analysed by the spreadsheet. So these are the results, if we look over

here we have the backtest equity graph. We can compare this to the, this will be familiar

to many people, the S&P 500. Now I’ve used a backtest between 1984 and

the 3rd month of 2015. So we’ve got quite a lot of data here. The S&P has obviously had its ups and downs

during that period. The 1989 crash is in there, back in 2002-03

we had the bear market, we had of course the more recent one in 2008-09. And then the more recent recovery since then. With these ups and downs of the stockmarket

over this period. We can see that this strategy has managed

to hold pretty well. It uses long and short trades, considering

that the market has mostly gone up during this period. It’s inevitable and to be expected, that it

is easier to make money on the long side. But we have had some significant periods of

downturn as well. And the model has managed pretty well during

those periods. Taking some money from short positions as

well. So we’ve got lots of different things that

we can alter here. We can increase the cost of trading. And see how this affects. We can adjust our profit targets, I’m using

a multiple of the ATR so I can set that from 4 to 6 and see how it affects the results. I’m also using a stop-loss, also based on

the ATR. And we’re also using a trailing stop as well. The trailing stop is of course designed to

lock in profits, once the position moves in our favour. I can adjust the length of the EMA from 50

to 200. And we get different results and a different

equity graph by adjusting these things. We’ve got our long entry and short entry based

on the MFI levels. If we go across here we can look at the results. We’ve taken a good number of points over this

time period. We’ve shown a good Profit Factor which is

the gross winning trades divided by losing trades. Getting almost up to 3:1 there, which is a

decent ratio. So what do we have in terms of profitability. Well, we’re showing somewhere around 70% win

percentage. Which again is quite decent, it depends on

your aims but it is quite decent results. We’re invested 38%of the time. This trading system is designed to pick up

good entry points, good value entry points in the direction of the dominant trend. So we’ve got 38%of the time. The average length of a trade is 96 and 77. These are quite long trades, we are looking

at multi-month trades here. You would have to have a long-time frame and

aspirations, but you can see over that time we have done pretty well historically. The maximum length of a trade lasts for more

than a year, 386 trading days. And the minimum length is just 13. But even that is over 2 weeks. And it reflects the fact that we’re using,

once we’ve entered a trade, we’re giving it plenty of room to move. OK, so there were the results, there is a

link on the screen if you’d like to see the accompanying article with some more detailed

information on it. Please subscribe to this channel if you would

like more information, there is already lots of different trading strategies, information

about technical indicators on the channel, so do subscribe for more videos and information. And for more information about trading strategies,

technical indicators and trading the financial markets, please go to www.tradinformed.com

Hi Mark, thanks for the video. Just want to ask, why sometimes do I see the MFI is above 80 (some > 80), but why does the volume is relatively low. Is there any reason behind these scenario? Β

Hi Mark. Is there any chance to calculate in the excel spreadsheet the TSSuper Trend using TEMA (MA) with ATR Hedging stand off get stop out ? I'm trying to develop hedge strategy using the ATR to hedge every time that the trade goes wrong closing out of the trades when hit 10 points to breakeven

Hi Sir, Can we Use this in a divergence? Positive or negative ? i m little bit confused

Hi Mark, Sometime accumulation Distribution line going down while Money Flow index remains above or around 80 why?

This does an extremely poor job of explaining anything other than the extremely broad concepts of the trading plan.

Did you mention what ema

Nice vdo. For Daytrading, what timeframe should we be looking at MFI if we are gonna trade for an hour or two maximum?

posh if big

Six months ago after signing up with index trading, I emailed you that this was the best $550 I have ever spent. I stand by that comment. Your mentoring and teaching capacity is immense and worthwhile, i appreciate the good fact. If I was starting my trading career all over again MARK URSELL and LUKASZ WILHELM would be the first two persons I would turn to for guidance and to put me on the right path of trading. Tremendous video thank you π.