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Market Facilitation Index BW MFI

 

Market Facilitation Index (BW MFI) Indicator Purpose


The Market Facilitation Index shows the change of price for one tick. According to Bill Williams, who wrote about Market Facilitation Index indicator in his book “Trading Chaos”, the MFI indicator measures “the market’s willingness to move the price”. Actually, the Market Facilitation Index provides an evaluation of the market efficiency in terms of its liquidity and activity. The indicator is flexible as much as necessary for applying to various time frames from 5 minutes upwards.



Market Facilitation Index BW MFI Indicator Usage


Bill Williams recognized four states for the Market Facilitation Index. Each of them has unique name, color and important meaning for traders. So they are:

  • Green bar or “Green”- MFI and Volume are Up.

The trading activity is rising and the market’s movement in that direction is accelerating.

This signal confirms the existing trend and indicates that you should trade along with it.

  • Blue bar or “Fake”- MFI is Up, Volume is Down.

The market movement is continuing its trend while the Volume has dropped. The trend will soon be reversing.

  • Pink bar or “Squat”: - MFI is Down, Volume is Up.

This MFI signal indicates a market slowdown after which a breakout may result that could be the start of a new trend. Often, the breakout will occur in the opposite direction to the preceding move.

  • Brown bar or “Fade”:- MFI and Volume are down.

The Volume falls as the traders get bored with trading the previous trend. So the market is no longer interested in the current direction and is looking for signs of a future development.



Market Facilitation Index BW MFI Indicator Calculation


Define:
  • n= the number of the time period bar in question.
  • High(n) = The high price traded during time period n.
  • Low(n) = The low price traded during time period n.
  • MFI(n) = Market Facilitation Index for time period n.
  • Volume(n)= Trading volume for time period n.
Calculate:
  • MFI(n) = [High(n) – Low(n)] / Volume(n)

 

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