Four-state money-flow-index as permission for a next-bar breakout-system

Whether an order is allowed to exist

The archive describes a historical workflow in which money-flow-index and volume states decide whether a breakout-system order is allowed to exist. If a working order is not filled in the immediately following bar, it is cancelled because the prior bar is treated as expired information.

A bar-efficiency reading compared with the prior bar

The money-flow-index is defined as the current bar's high-low range divided by that bar's volume. The result is a price-distance-per-volume reading that is then compared with the prior bar.

The same construction is specified for charts from five-minute bars through weekly bars. Intraday data use tick-volume. Daily and weekly charts may use tick-volume or actual volume, with a consistency rule not to switch volume types on those higher-timeframe charts.

Four facilitation-states

The signal library consists of four joint facilitation-states of money-flow-index change and volume change.

The state in which both rise is treated as the strongest facilitation reading. It is treated as permission for a breakout-system entry aligned with other trend indicators.

A rising money-flow-index with falling volume is treated as a weak move that is not acted on unless a both-rising state follows shortly. A both-falling state is treated as a pause. A falling money-flow-index with rising volume is treated as either the end of a move or a platform for continuation, identified on short-term charts as a smaller range on higher volume.

Two next-bar breakout-system variants

After a both-rising 30-minute bar, one breakout-system variant places stop orders one tick beyond that bar's high and low. If a position is already open, it reverses with a two-contract stop at those same prices. If neither order is filled in the next 30-minute bar, both are cancelled. Filled positions in that variant are held through the close into the next session without an intervening stop.

A second breakout-system variant takes the same next-bar breakout of a both-rising 30-minute bar, rests a protective stop at the opposite extreme of that bar, and, if still open, exits at the session close. Unfilled straddles are again cancelled after the subsequent bar.

Stale-bar-cancel and session structure

Both variants use a stale-bar-cancel rule. A working straddle dies if it is not filled during the immediately following bar.

Session-structure adjustments for the day-trade tests included folding the final 15 minutes into a 45-minute last bar and excluding shortened-hour sessions from late 1987 so that missing late bars would not distort the both-rising classification of the following open.

Replacing discretionary market-profile logic

The money-flow-index procedure is presented as a mechanical substitute for market-profile auction logic that was found hard to trade by discretion. In this workflow, market-profile is the discretionary idea of who is participating and whether trade is being facilitated.

The models are described as unoptimized because they only compare the current bar with the immediately preceding bar.