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2004issue C061-10

Constructing a volume-flow rule from money flow

The volume-flow construction modifies on-balance volume with a typical-price money-flow test, a volatility cutoff, and a volume cap, then optionally flips long or short when a smoothed reading crosses zero.

  • Volume-flow is presented as a modified on-balance-volume calculation that uses money flow to assess trend strength.
  • Typical price change is tested against a volatility cutoff, and volume is curtailed before it can enter the signed term.
  • The raw reading is a period sum of directional volume divided by a prior volume average, then optionally smoothed.
  • When a listing has little history, a cumulative signed-volume total based only on typical-price direction replaces the full cutoff-and-cap construction.
Entries in this reading3 entries
Current trackMoney Flow Index16 readingsOn-balance volume25 readingsVolume-price analysis129 readings

A modified on-balance-volume construction

The volume-flow construction is presented as a modified on-balance-volume calculation that uses money flow to assess trend strength. On-balance volume is a signed running volume total that adds volume on up bars and subtracts it on down bars.

The modification follows volume-price analysis: a construction that pairs price change with volume so that only volume accompanying a qualifying price move contributes to the signal. The money-flow index supplies that price-change input. It is a typical-price money-flow construction used here to decide whether volume is treated as up, down, or ignored.

Typical-price change and the cutoff band

Typical price change (MF) is compared with a cutoff built from a coefficient times the 30-bar standard deviation of log typical-price change times close.

How volume is curtailed

Volume is curtailed at a multiple of a prior volume average before it is allowed to enter the signed directional-volume term. Directional volume is set to curtailed volume, its negative, or zero according to whether money flow is above, below, or inside the cutoff band.

From directional volume to a reading

The raw volume-flow value is a period sum of directional volume divided by the prior volume average, then optionally smoothed with an exponential average. A companion volume plot compares the curtailed volume series with total volume so the construction's volume cap can be inspected bar by bar.

A thinner total for new listings

An IPO-oriented variant replaces the full cutoff-and-cap construction with a cumulative signed-volume total based only on typical-price direction, because new listings have little history.

A zero-line flip

One implementation treats a smoothed volume-flow crossing through zero as the long/short flip rule for the construction.

S&P 500 volume-flow indicator, July 2003 to April 2004

After a short July 2003 dip below zero, the volume-flow reading stayed positive while the S&P 500 advanced from the mid-900s into the mid-1100s, then cooled as the index sold off in March 2004. The series was read from the Financial Data Calculator curve in the source, not from a table.
After a short July 2003 dip below zero, the volume-flow reading stayed positive while the S&P 500 advanced from the mid-900s into the mid-1100s, then cooled as the index sold off in March 2004. The series was read from the Financial Data Calculator curve in the source, not from a table.S&P 500 · Daily · 2003-07-01T00:00:00.000Z to 2004-04-30T00:00:00.000Z

Read from the plotted line to the nearest half unit. The source macro uses a 130-bar volume average, a 0.2 volatility coefficient, a 2.5-times volume cap, and a three-bar exponential smooth.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
8 of 13 in the Money Flow Index track
20061-6 pp.Next on Money Flow IndexClassify the regime before the bar readA method should be run only in structures that match its logic, because instrument type, liquidity, participant mix, and how participants process information change market behavior.
All readings on this track · 13 readings
  1. 1988Constructing tick-weighted money flow and price divergences
  2. 1989Four-state money-flow-index as permission for a next-bar breakout-system
  3. 1989Constructing a suggest-then-confirm Money Flow Index
  4. 1993Five-rung money flow from signed print volume
  5. 1993Physics analogies for building cycle and money flow indicators
  6. 1994Keep a wave count as a draft until money flow and a trendline agree
  7. 1999Take the rectangular-base breakout from money-flow confirmation, not from a late strength average
  8. 2004Constructing a volume-flow rule from money flow
  9. 2006Classify the regime before the bar read
  10. 2015Constructing a bounded money-flow oscillator from range and volume
  11. 2016Combining RSI, moving averages, and money flow
  12. 2018Five-rule technical rating as a rotation filter
  13. 2020Combining money-flow, RSI, and breadth for dynamic pressure zones
By fieldIndicators and filters682 readingsBy year2004107 readings
All 16 readings tagged Money Flow Index
Also on Money Flow Index5 readings
2015Money flow oscillator construction from volume pressure1993Five-rung money flow from signed print volume2006Classify the regime before the bar read1988Constructing tick-weighted money flow and price divergences1989Constructing a suggest-then-confirm Money Flow Index