Constructing a suggest-then-confirm Money Flow Index

Build money flow from the bar

A bar's money flow equals volume times average price. Average price is the mean of high, low, and close. Over a trader-chosen window, positive money flow and negative money flow are the sums of the hourly money-flow observations in each category.

The money ratio is positive money flow divided by negative money flow. Money Flow Index is constructed by mapping the money ratio onto a 0-100 scale as 100 minus 100 divided by one plus that ratio.

Compare Money Flow Index with AvgMFI

AvgMFI is the average of all Money Flow Index values from the start of the series to the current bar. Percent volume change can be averaged the same way.

A shorter window makes Money Flow Index more sensitive versus AvgMFI. A longer window reduces that sensitivity. An MFI-AvgMFI cross is only a suggestion.

Add a percent volume change gate

The stack was built to reduce false moving-average-cross signals by suggesting first and confirming or rejecting later. After the suggestion, a later material percent volume change confirms or rejects it according to how that volume move affects Money Flow Index.

If participation does not support the money-flow reading, the percent volume change gate can reject the idea.

Use weighted on-balance volume as a visual check

Weighted on-balance volume is volume times the change in average price. It is intended as a visual check that should move with Money Flow Index.

Substituting weighted on-balance volume for the money-flow input ties positive flow to a rise in average price and negative flow to a decline.

Worked May 1989 sequence

The worked May 1989 example used a three-day window equal to 21 collected points. One sequence showed Money Flow Index falling to 30 with a 300 percent volume change. A later sequence treated an 800 percent volume change as the stronger confirmation reading.

Editorial reading of the two-gate lab

Editorial. This TradersWeek reading treats the construction as a lab sequence, not as a finished trading rule. The first gate publishes a candidate when Money Flow Index crosses AvgMFI. The second gate asks whether a material percent volume change then moves Money Flow Index in a way that supports that candidate.

Window length belongs to the construction. A shorter window raises sensitivity versus AvgMFI and a longer window damps it, so the suggestion itself changes with the chosen window.