Money Flow Index Divergences

The Money Flow Index Divergences indicator provides a multi-faceted approach to analyzing market momentum and volume by identifying potential trend reversals through divergence detection.

Usage

The script is designed to help traders spot shifts in market dynamics using the Money Flow Index (MFI). By observing the relationship between price action and the MFI oscillator, users can identify potential entry or exit points based on momentum shifts.

• Divergence Signals: Bullish signals occur when price makes a lower low while the MFI makes a higher low. Bearish signals occur when price makes a higher high while the MFI makes a lower high.
• Gradient Visualization: The MFI line changes color based on its value relative to its recent range, allowing for a quick visual assessment of momentum strength.
• Confluence Area: A thin bar at the top of the indicator pane visualizes a longer-term MFI calculation, helping traders align short-term signals with the broader market context.

Details

The tool utilizes several key technical components for its output:

• MFI Calculation: The core oscillator uses the typical price (hlc3) over a user-defined length.
• Normalization: MFI values are normalized within a specific lookback period to drive the gradient color engine, ensuring the visual feedback is relative to current market volatility.
• Pivot Points: Divergences are calculated using pivot highs and lows. The "Sensitivity" setting determines the number of bars required to confirm a pivot, affecting how frequently divergences are detected.

Settings

Money Flow Index Oscillator Settings

• Oscillator Length: Determines the lookback period for the main MFI calculation.
• Confluence Bar Length: Sets the lookback period for the secondary, longer-term MFI used in the confluence area visualization.

Divergence

• Sensitivity: Adjusts the pivot calculation length. Higher values result in fewer, more significant divergence signals, while lower values increase the frequency of signals.

FAQ

How do I interpret the gradient colors? The colors shift between red and green based on the normalized value of the MFI. Brighter green indicates higher relative money flow, while brighter red indicates lower relative money flow.

What does the bar at the top represent? This is the Confluence Area, which calculates MFI over a longer period (default 50) to provide a perspective on the higher-timeframe trend or momentum.

How can I access this tool? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.