Money Flow

What is Money Flow

Money flow is calculated by averaging the high, low and closing prices, and duplicating by the daily volume. Contrasting that outcome and the number for the previous day lets traders know whether money flow was positive or negative for the current day. Positive money flow demonstrates that prices are probably going to move higher, while negative money flow recommends prices are going to fall. The below model shows negative money flow between Day One and Day Two:
$\begin &\textbf \ &\text $65 \ &\text $60 \ &\text $63 \ &\text 500,000 \text \ &500,000 \times \frac { $65 + $60 + $63 }{ 3 } = $31,333,333 \ &\textbf \ &\text $66 \ &\text $58 \ &\text $65 \ &\text 300,000 \text \ &300,000 \times \frac{ $66 + $58 + $65 }{ 3} = $18,900,000 \ \end$

BREAKING DOWN Money Flow

Positive money flow happens when a stock is purchased at a higher price (an uptick). Negative money flow happens when the next trade is purchased at a lower price (a downtick).

In the event that more shares were bought over the course of the day on the uptick than the downtick, net money flow is positive since additional investors were able to pay a premium for the stock. On the off chance that money flow is negative when a stock's price is rising, this could show a pending price reversal. Investors monitor money flow since trading volume is normally considered to lead price, which could assist with distinguishing early trading opportunities.

Money Flow and Money Flow Indicators

Numerous traders utilize the Chaikin money flow oscillator when they need to integrate money flow into their trading choices. The indicator, made by Marc Chaikin, produces values for buying and selling pressure like other money flow indicators yet additionally involves two exponential moving averages to decide momentum along these lines that the moving average convergence divergence (MACD) indicator does.

Traders likewise habitually utilize the money flow index (MFI) when they need to investigate price and volume. This indicator partitions the net positive money flow by the net negative money flow and plots the value as a line that traders can compare to the price of a security to recognize overbought and oversold levels. Assuming the indicator is over 80, prices are considered overbought. A value below 20 demonstrates oversold conditions.

Other technical indicators ought to be utilized related to money flow indicators to work on their viability and reduce false trading signals.