You can use the market facilitation index indicator to quickly see if price movement and volume are picking up simultaneously.
This can be timely information because you can use it to see if a trend is likely to pick up steam or if the market could be looking to reverse.
This post goes through the market facilitation index indicator and how you can use it for free in your MT4 and MT5 charts with different strategies.
NOTE: Want a list of some of the very best free MT4 and MT5 indicators you can use in your trading for FREE? You can get them below.
What is the Market Facilitation Index Indicator
Legendary trader Bill Williams is the inventor of the market facilitation index indicator or the MFI.
Williams created this indicator to quickly identify how price moves compared to the new volume coming into the market.
This can be important because you can use the MFI reading to see if the volume is picking up at the same time the price movement is picking up. This can help you identify when a trend is strong and likely to continue or if a move is starting to fade out.
Williams used the tick values to look at how the price was moving. He then compared these movements to the amount of new volume coming into the market. Looking at price movement and volume is helpful, but when you look at these two things together, it can start to give you an interesting picture of what other traders are doing.
Check out the example below of the MFI indicator when it is added to your Metatrader charts.
How to Use the Market Facilitation Index Indicator
Most technical analysts and traders using indicators will agree that looking at the volume is a crucial piece of information.
The good thing about the MFI is that it doesn’t just look at the volume but also how the price is moving in relation to the volume.
Why is this important? Because you can use this information to see if a trend is likely to continue or if it is potentially running out of steam.
The four combinations for the MFI indicator are as follows;
- Volume and MFI are both increasing
- Volume and MFI both decreasing
- Volume is decreasing and the MFI increasing
- Volume is increasing, and the MFI is decreasing
Here is your quick guide on how to read the market facilitation index indicator;
Volume and MFI Both Increasing
This indicates that a particular move or trend could be picking up speed. When both the volume and movement of price are moving together, it shows a substantial amount of order flow, and the price is moving powerfully one way.
Volume and MFI Both Decreasing
When the volume and the MFI start to decrease together, it shows order flow levels are low. It also indicates that traders are not as interested as they were, and a move could be petering out.
Volume Decreasing and the MFI Increasing
When the MFI is increasing, but the volume is slowing, it shows that the market is out of sync and that there are not as many traders as there were, even though the price is still moving.
This can be an excellent time to watch the market and not enter any new trades as the price could be looking to move sideways and range.
Volume is Increasing, and the MFI is Decreasing
When volume increases but the MFI is lower, there is an ongoing battle between buyers and sellers for where the price will move next.
As more traders move into the market, the volume will begin to pick up. The key is to watch which direction the price breaks and if the buyers or sellers win out.
This is usually when you will see the large and fast moves as volume is high and either the bulls or bears take charge of the market.
Market Facilitation Index Indicator for MT4 and MT5
To add this indicator to your MT4 or MT5 charts is straightforward.
To add the market facilitation indicator to your MetaTrader charts, follow these steps;
- Open your MT4 or MT5 charts
- Select “Insert” >> “Indicators” >> “Bill Williams” and finally “Market Facilitation Index”.
- A box will then pop up on your charts where you can customize the different settings.
- Change things like the colors of the bars and the fixed minimum amount and select “Ok”
- The indicator will now be added to the bottom of your MetaTrader charts
See the example image below to find the market facilitation index indicator in your MT4 or MT5 charts.
While this is a good indicator for quickly identifying what price is doing in relation to the new volume coming into the market, it is not best when used alone.
Some of the most popular strategies to trade with the MFI include using other popular indicators and technical analysis.
These include using multiple moving averages to confirm a trend and how strong a trend is and price action strategies such as important candlestick patterns.
As with any new strategy or indicator you are testing out, always test this indicator on your free demo or virtual accounts before risking any real money in a live trading account.
Note: Don’t know how to install and use these indicators? Read How to Download, Install and Use MT4 and MT5 Indicators.