Money Wave Script (Visual Adaptive MFI)

Oct 13

This Script is a visual modification of the Money Flow Index (MFI)

//version=5
indicator(title="Money Flow Index", shorttitle="MFI", format=format.price, precision=2, timeframe="", timeframe_gaps=true)
length = input.int(title="Length", defval=14, minval=1, maxval=2000)
src = hlc3
mf = ta.mfi(src, length)
plot(mf, "MF", color=#7E57C2)
overbought=hline(80, title="Overbought", color=#787B86)
hline(50, "Middle Band", color=color.new(#787B86, 50))
oversold=hline(20, title="Oversold", color=#787B86)
fill(overbought, oversold, color=color.rgb(126, 87, 194, 90), title="Background")


This Money Wave Script is culled from. the Money Flow Index with visual representation to help traders identify money flow. In addition, the waves can be smoothened. Here’s a detailed overview based on its functionality, color coding, usage, risk management, and a concluding summary.

Functionality
The Money Wave Script operates as an oscillator that measures the inflow and outflow of money into an asset over a specified period. It calculates the MFI by considering both price and volume, which allows it to assess buying and selling pressures more accurately than traditional indicators that rely solely on price data.

Color Coding
The indicator employs a color-coded scheme to enhance visual interpretation:
Green Area: Indicates bullish conditions when the normalized Money wave is above zero, suggesting buying pressure.
Red Area: Indicates bearish conditions when the normalized Money wave is below zero, suggesting selling pressure.
Background Colors: The background changes to green when the MoneyWave exceeds the upper threshold (overbought) and red when it falls below the lower threshold (oversold), providing immediate visual cues about market conditions.

Usage
Traders utilize the Money Wave indicator in various ways:
Identifying Overbought and Oversold Levels: By observing the MFI readings, traders can determine when an asset may be overbought or oversold, prompting potential entry or exit points.
Spotting Divergences: Traders look for divergences between price and the MFI to anticipate potential reversals. For example, if prices are making new highs but the MFI is not, it could indicate weakening momentum.

Trend Confirmation: The indicator can help confirm trends by showing whether buying or selling pressure is dominating.
Customizable Settings: Users can adjust parameters such as the MFI length , Smoothen index and overbought/oversold thresholds to tailor the indicator to their trading strategies.


Conclusion
The Money Wave indicator is a powerful tool for traders seeking to analyze market conditions based on the flow of money into and out of assets. Its combination of price and volume analysis, along with clear visual cues, makes it an effective choice for identifying overbought and oversold conditions, spotting divergences, and confirming trends.

Oct 15

Release Notes

Overview of the Money Wave Indicator
This Script is a visual modification of the Money Flow Index (MFI)
The Money Wave indicator is designed to visualize the Money Flow Index in a smoothed format, helping traders identify overbought and oversold conditions in the market.

Key Components
Input Parameters:
Money Flow Index (MFI) Length: Determines the period for calculating the MFI.
Smoothing Length: Defines how much to smooth the normalized MFI.
MFI Lower and Upper Bounds: Set thresholds for identifying oversold and overbought conditions.

MFI Calculation:
The MFI is calculated using the ta.mfi function, which takes into account the typical price (HLC/3) over a specified length.

Normalization:
The MFI is normalized to oscillate around zero by subtracting 50 from its value. This allows for easier interpretation of bullish and bearish conditions.

Smoothing:
A Simple Moving Average (SMA) is applied to the normalized MFI to create a smoothed version, which reduces noise and makes trends clearer.

Color Coding:
The indicator uses color coding to differentiate between bullish (green) and bearish (red) conditions based on whether the smoothed MFI is above or below zero.

Plotting:
The smoothed MFI is plotted as an area chart, with additional lines indicating upper and lower bounds for overbought and oversold conditions.
A neutral zone is filled between these bounds for better visual clarity.
Background Highlighting:
The background color changes to indicate extreme conditions: green for overbought and red for oversold.

Labeling Changes:
Labels are added when there’s a change in direction of the smoothed MFI, providing visual cues for potential trading signals.

How to Use the Money Wave Indicator
Interpretation
Bullish Signals: When the smoothed MFI crosses above zero, it may indicate a bullish trend.
Bearish Signals: Conversely, crossing below zero may suggest bearish momentum.
Overbought/Oversold Conditions: If the MFI exceeds the upper bound, it may signal overbought conditions; similarly, falling below the lower bound may indicate oversold conditions.

Trading Strategy
Entry Points:
Consider entering long positions when the smoothed MFI crosses above zero after being below it.
Look for short positions when it crosses below zero after being above it.

Risk Management:
Use stop-loss orders based on recent price action or volatility levels.
Monitor other indicators or price action for confirmation before making trading decisions.

Adjust Parameters:
Experiment with different lengths for both MFI and smoothing to find settings that work best for your trading style or market conditions.

Conclusion
The Money Wave indicator provides traders with a visually intuitive tool to gauge market momentum and identify potential entry and exit points based on money flow dynamics. By understanding its components and how to interpret its signals, you can enhance your trading strategy effectively.