Market Facilitation Index Indicator or MFI is used to see the strengths and weaknesses of price movements. This indicator’s absolute values alone cannot provide any trading signals, unlike its dynamics in relation to the dynamics of the volume. Check the MFI indicator in action in HDFC share price chart.
The Meaning of the Different Coloured Bars in Market Facilitation Index Indicator:
The bars of this indicator is divided into four colors depending on the price movement and the volume. Below shows the different settings for this indicator. One can attach the MFI indicator in a chart from the STUDIES section in Zerodha Kite. Check the image below for the default parameters (6) and the color of bars.
- Green Bar – The green bar in this indicator indicates that the price movement is increasing and the volume is growing. Maximum traders at this point are entering the market and they are trading in the same direction as the price move which causes it to grow in strength. This means that if a trader is looking to enter the trade in the direction of the move now can be a good time. Vice versa, if a trader were looking to trade against the market direction trader, may want to hold off. This can also apply to open positions as if the indicator is showing movement against trader’s open position this could be a good time to get out.
- Brown Bar (Fade Bar) – The brown bar in this indicator indicates that there is a weakening of momentum of the price move. This suggested that traders are losing interest in the current move or that the trend is coming to an end. The traders should avoid entering into a position in the same direction as the trend. More time use this bar as an indicator for a market reversal and trade against the starting trend.
- Fake Bar (Blue Bar) – The blue bar in this indicator indicates that the strong move could be due to speculation and not an indication of a trend as it is short lived. This is not a bar that trader would want to enter into a trade in the same direction as the move. The bar looks at the disconnect between price moves and the volume of trades it took to cause them.
- Squat Bar (Pink Bar) – A pink bar in this indicator indicates a high volume with little price movement caused by traders entering the market in both directions. This can often be a strong move in either direction giving traders the chance to make a quick profit. This indicator also can predict the strength, it cannot predict the direction of the following move.