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

9 thoughts on “A Profitable Money Flow Index Trading Strategy

  1. 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 

  2. 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

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

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

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

  6. 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 πŸ™.

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