Market Facilitation Index Indicator
MT5Also Available for MT4Market Facilitation Index is a technical indicator developed by Bill William. MFI is a histogram based indicator that has different colors and each color has a specific signal.
Description
Bill Williams developed the Market Facilitation Index for one of the first versions of his trading system, which he detailed in his book Trading Chaos. The author himself positions this tool as the most effective indicator for assessing the market reaction to changes in trading volumes.
Williams likes to emphasize that his trading system is unique and does not belong to classical technical analysis. However, most of the indicators he created (Alligator, AO, AC) are modified moving averages or simple oscillators.
Market Facilitation Index indicator calculation
The tool is based on one formula:
MFI = (high – low) / volume,
where
High is the high of the current candle,
Low — low of the current candle,
Volume — tick trading volume.
How does the Market Facilitation Index work?
Each of the columns of the Market Facilitation Index gives the trader a specific signal:
The green bar signals an increase in volumes and an increase in the trend. This means that more and more new participants will enter the market, which means that the current movement is likely to continue. This bar is not a direct entry signal because it has already gained strength and it is often too late to enter the market. However, if you managed to open a trade earlier, the green bar confirms the correctness of your actions.
The brown bar indicates that the movement in the market is fading and the interest of traders in this asset. A brown bar often heralds a sideways trend; therefore, it enters the market in the opposite direction of the last trend. It is not recommended – it is far from a fact that after the end of one trend, a new one will necessarily form.
The blue bar indicates that the current movement is developing not due to active trading, but due to a lack of interest in either bulls or bears. This trend can stop at any moment. Therefore, when the blue bar is formed, the state of the market is assessed as uncertain.
The pink bar is of the greatest interest to traders. Its appearance signals active trading by both sellers and buyers. A trend reversal often occurs on a pink bar.
Trading strategy using the Market Facilitation Index
Now let’s discuss a trading strategy based on the Market Facilitation Index indicator.
Setting up the purchase
- A pink bar will appear on the screen.
- The trader places a pending buy order a few pips above the last local high.
- Stop-loss is set above the last local low.
- Take profit is 2-3 times larger than the stop (depending on the value of SL and proximity of key levels).
Setting up the sale
- A pink bar appears on the MFI.
- The trader places a pending sell stop order a few pips below the last local low.
- Stop-loss is set above the last local high.
- Take profit is 2-3 times larger than the stop (depending on the value of SL and proximity of key levels).
Displaying the Market Facilitation Index
The MFI indicator was developed by Bill William and is used to determine the reversal and strength of a trend in the market. The indicator has a histogram of different colors, and each color corresponds to a specific scenario. However, the pink bar is the most important bar as it shows a potential trend reversal.
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