Twiggs Money Flow Indicator developed by Colin Twiggs. This is a variation on the Chaikin Money Flow or CMF indicator. It uses True Range and volume. Adjustable guides are given to fine-tune the signals. The Chaikin Money Flow uses Close Location Value (CLV) to evaluate the volume of money flow as bullish or as bearish, Twigs Money Flow, on the other way, uses the TR (True Range). This indicator also relies on moving averages in its calculation while Chaikin uses cumulative volume.
How to Calculate the Twiggs Money Flow?
- First, calculate the 21-day exponential moving average (EMA) for closing prices using:
EMAc = αPt + (1 – α)EMA c−1 Where: Pt is today’s closing price and α=2/N+1 and N=21 period.
- Calculate Money Flow Multiplier (MFM): MFM = ((Today’s Close – Lowest Low)/(Highest High – Lowest Low)) * Volume] Where: Highest high is the highest price of the last trading period and lowest low is the lowest price of last trading period and volume stand for traded volume in a particular time frame.
- Calculate Money Flow Volume (MFV): MFV = MFM × Yesterday’s Close Where close stands for the previous day’s closing price.
- To get the 21-day Twiggs Money Flow indicator, calculate the simple moving average of MFV with an interval of 21 days or one business month i.e VMF21= ∑nVMFi/n where n denotes the total number of periods over which money flow calculation has been done here will be the total number of days in past one month plus current day so n would be equal to 21+(number of weekdays in a month).
How to Attach the Twiggs Money Flow Indicator on Charts?
Let us now check how we can attach the TMF indicator to our charts. We will attach it on 3 different platforms.
On Zerodha Kite
If traders want to attach the Twiggs Money Flow indicator, then they can find it in the STUDIES section of Zerodha Kite and it is also available in Kite Mobile App. The Period is 21 and you can set and change this value. You can use the indicator on any charts that include a daily time frame, weekly time frame, monthly time frame, or intraday time frame. You can also check the image below to understand how we attached the TMF indicator to the HDFC Bank share price chart.
On Upstox Pro
The next charting platform for technical analysis is Upstox Pro. Here, I add the TMF indicator on their charting platform. In the searching option, just write down the name of the indicator. And click on apply.
On the Incredible Charts Platform
This is the default platform and the flagship company of Collin Twiggs. You can download and use this platform free of cost. Once you install their charting software you can open free end-of-day charts of Indian as well as foreign securities. Here I opened a Dow Jones chart. The 21-day Twiggs Money Flow is the default indicator there.
Features of the Twiggs Money Flow Indicator
- The TMF indicator, when the close price is located at True High, 100% of the volume is considered as bullish volume. Another is when the close price is located at True Low, 100% of the volume refers to as bearish volume.
- Also part is when it is Close then the price is exactly in the middle between True High and True Low. At this time the weighed volume or range volume is equal to zero.
- This is the same as with Chaikin Money Flow or CMF. The positive Twiggs Money Flow readings are a sign of the bullish pressure and negative TMF readings are an indication of bearish sentiment.
- The Twiggs Money Flow indicator will indicate to buy when it turns positive and to sell when it turns negative. Although, bullish signals of this indicator could be generated when bullish divergence is noted.
- In the same way, the sell signals of this indicator generate a bearish divergence.
Limitations of the Twiggs Money Flow Indicator
The Twiggs Money Flow indicator is also quite choppy indicator. This is why in some cases analysts recommend using the moving average applied to it. In the Twiggs Money Flow (TMF) indicator’s charts traders may see this MA as a signal line applied to TMF. In another case, signals generated on the crossovers of the signal line and zero lines. This is the crossovers of the TMF and the signal line and the divergence of the signal line.
Trading Strategies of the Twiggs Money Flow Indicator
First, for a trade setup, we need to consider the following points for an uptrend:
- Price making higher highs and higher lows of this indicator.
- Higher amounts of money or volume trading in the stock each day of TMF indicator.
- Closing higher and higher in its daily trading range of this indicator.
- Whether the range is expanding or contracting in the Twiggs Money Flow (TMF) indicator.
Entry on the Basis of Zero Line Crossover
For instance, here, I had taken a buy position once the indicator line crossed the zero lines from below and goes above. And, sell or short sell once the line crosses the zero levels from up and went below.
If all of these qualities of Twiggs Money Flow indicators are in place, traders agree this confirms an uptrend is truly in place. Therefore the smart money is likely accumulating a position in the stock or index to TMF indicator is applied. If this is taking place, then this indicator will rise in value and continue to make new highs along with the stock’s movement.
Trading the Divergence
If traders see that the level of the stock is increasing and this indicator is going the opposite way, it is a divergence pattern. Then it could quite likely indicate that a bubble is building. This type of situation is called the distribution zone. It means the rally that the stock or index is enjoying is likely the smart money offloading their positions to the public before a big drop takes place.
In the opposite way, if the traders see that the price level of a stock is dropping but the Twiggs Money Flow is moving opposite. Then this is the upwards direction. Another, this indicates accumulation is going on and a possible strong reversal could be coming in the stock.
The Twiggs Money Flow indicator combines price and volume data to identify buying and selling pressure in security. It uses a ratio of an asset’s up-volume versus its down-volume, which reflects whether traders are buying or selling the stock from day to day.
The Twiggs Money Flow Index (TMF) measures money flow over time using an average of accumulation/distribution indicators derived from closing prices, traded volumes, and high-low ranges. This provides investors with insight into market psychology that can supplement technical analysis.
The Chaikin Oscillator tends to be used alongside the TMF as it helps traders validate divergence signals provided by both indicators by pinpointing trends when they occur together or separately. Furthermore, support & resistance lines are also useful when combined with these two tools in order to get better results from trading decisions.
The basic premise underlying the Twiggs money flow strategy involves searching for possible tradeable locations through the comparison of this index against its moving averages. If the price moves ahead while relative strength stays above its midpoint – then buyers are showing strength; whereas if the price drops alongside weakening relative strength then sellers have taken control of markets and the vice versa scenario works out accordingly.
The most valuable method of TMF indicator to predict major market moves. This can also capture significant profits by tracking smart money. The main part is described how it moves and the key indicators signaling which way the money is flowing. A critical factor of this to track where Smart Money is going is the Twiggs Money Flow indicator. This indicator is based on Chaiken’s Money Flow. TMF utilizes Volume as a measure of market conviction. It seeks to weed out false signals and smooth the signal line created by Chaikin Money Flow (CMF).