The Market Facilitation Index (MFI) is a technical indicator that shows how efficiently the market is moving based on price and volume. It was created by trader Bill Williams to help understand the strength or weakness behind price moves. MFI helps traders know if the market movement is supported by real volume or just a false move.
How is Market Facilitation Index (MFI) Calculated?
MFI is calculated by subtracting the low from the high of a candle and dividing it by the volume. Formula: MFI = (High - Low) / Volume It shows how much the price is moving for every unit of volume traded. A high MFI means the market is moving fast with strong volume, while a low MFI means weak movement or indecision.
What Does MFI Tell Traders?
MFI tells traders whether the price move has strong volume behind it or not. If both MFI and volume increase, it means the trend is strong. If MFI goes up but volume drops, it may be a false move. This helps traders decide if they should trust the price action or stay cautious. It is mostly used in combination with other indicators.
What Are the Four MFI Signals?
Bill Williams defined four basic signals using MFI and volume:
1. Green: MFI and volume both increase – strong trend continues.
2. Fade: MFI decreases, volume decreases – market losing interest.
3. Fake: MFI increases, but volume decreases – possible trap.
4. Squat: MFI decreases, but volume increases – tug of war between buyers and sellers.
These signals help traders understand market sentiment and strength.
Is Market Facilitation Index Useful in Indian Markets?
Yes, MFI can be useful in Indian markets like Nifty and Bank Nifty. It helps traders understand whether a breakout or breakdown is real or fake. In India, where volumes can be tricky to read, MFI gives extra confidence before entering trades. Many Indian traders use it with candlestick patterns and moving averages for better accuracy.
How to Use MFI with Other Indicators?
MFI works best when combined with other indicators like RSI, MACD, or Bollinger Bands. For example, if MFI shows strong movement and RSI confirms momentum, it gives a solid entry signal. Also, traders use price action, trendlines, and support/resistance with MFI for better confirmation. This makes trading decisions more reliable and reduces false entries.
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