RSI VOLUME STRATEGY INTRADAY
Can a volume weighted RSI improve trend trading?
Last week with On Balance Indicator (OBV), we looked at how volume can be a powerful pointer for traders to stop the price move.
In our last offer to set Indicator Combinations, we will see another powerful combination-
Supertrend and
The Mani Flow Index (MFI), another oscillator that tracks prizes with volume.
We have covered in depth in article 4 and article 5 of this series before. So let's first understand MFI and see how we can mix it in our strategy.
Money flow index
The Money Flow Index is a typical (between 0 and 100) oscillator that uses prizes and volumes to identify overbought or over-sold securities. As a momentum oscillator incorporating volume, MFI does a great job of identifying reversals and prize extremes.
Comparison with RSI
As MFI only includes both prize and volume data as opposed to prizes, it can be called volume-weighted RSI.
The reason for this comparison is that MFI uses the same formula as RSI. The RSI uses the ratio of average profit to average loss, but, MFI, includes the value and volume product for calculating positive money flows and negative formulas.
Formula
Interpretation
1- Over bot and over soldered levels can be used to identify the peak of the prize. Generally, an MFI above 80 is considered over bot and MFI below 20 is over-sold. However, in strong trends the levels can remain at peak for longer periods.
2- Diversions and failures swings can create high probability signals.
A bullish failure swing occurs when the MFI is over-soldered below 20, goes above 20, stops at pullbacks above 20 and brakes at its earlier reaction highs.
A Bearish Failure Swing is created when the MFI is over-botched above 80, falls below 80, fails to bounce above 80 in a bounce and then brakes at an earlier reaction low.
