This strategy is using Money Flow Index and Bollinger Bands in order to identify the probable trend reversal points.
Money Flow strategy is using both 15 minutes and 30 minutes bars and on average, will generate around 5 trading signals per day. The strategy may open up to 3 positions in the same direction simultaneously.
Money Flow Index (MFI) is a momentum indicator. It is a volume-weighted version of a popular Relative Strength Index, which measures the velocity and magnitude of the price movements (counted as the ratio of higher closes vs. lower closes for the consecutive bars).
The value of the oscillator ranges from 0 to 100. MetaTrader 4’s default settings for the overbought level (sell signal) is when the MFI rises above 70 and for the oversold level (buy signal) is when the MFI falls below 30.
Bollinger Bands are a volatility indicator, consisting of the moving average and upper and lower bands, which are a function of the standard deviation of the price in the given time period and widen or narrow, as the volatility is rising or falling.
When the price of the instrument is reaching either of the bands, it is considered a signal of the likely reversal of the trend.
Money Flow Strategy is seeking to identify the points when the trend is reversing and open the positions accordingly.
Bollinger bands are used as an additional filter to reduce the likelihood of false signals.
Buy signal will be generated if the 30-minute Money Flow Index is less than 35 and the low of the current 30-minute price bar is less than, or equal to the previous lower 15-minute Bollinger band.
Accordingly, the sell signal will be generated if the Money Flow Index is greater than 65 and the current 30-minute price bar is greater than, or equal to the previous upper 15-minute Bollinger band.
The throttle settings limit the number new of signals being generated to 1 per 5 minutes.
If the strategy already has a position and an additional signal in the same direction is generated, further position will be opened, with the limit of consecutive positions being set at 3 (please note that this is a number of positions that can be opened simultaneously, not the volume of these positions).
The positions will be closed and reversed when the opposite direction signal is generated, meaning that for example the long position will be reversed once the MFI oscillator rises above 65 and the current 30-minute price bar will be greater, or equal to the previous 15-minute upper Bollinger band.
The strategy is using symmetric stop-loss and take-profit orders, set at 40 pips.
The strategy’s accuracy in the long term is likely to be around 60%.
This strategy works best when the markets are moving within a range. During the strong trends in either directions the MFI indicator value may remain in the overbought / oversold area for the prolonged periods of time and false signals will be more frequent in such periods.