Money Flow Trading System

When we talk about oscillators in trading, it is easy to relate to the most known ones, such as Relative Strength Index (RSI), the Stochastic Oscillator, or the Commodity Channel Index (CCI). There is one in particular that I have not tested, called Money Flow (MFI), and I would like to see in this article if it works on the futures markets. 

Money Flow index calculation

Money flow is calculated by averaging the high, low and closing prices, and multiplying by the daily volume. Comparing that result with the number for the previous day tells traders whether money flow was positive or negative for the current day. Positive money flow indicates that prices are likely to move higher, while negative money flow suggests prices are about to fall. 

Moneyflow index calculation

https://www.investopedia.com/terms/m/moneyflow.asp

How it looks

Money flow index examples

It’s relevant to see that it also has an Overbought and Oversold that we can use for entries and exits.

For the test, I will use the following:

Charting Software: TradeStation 10.0.

Code development language: Easylanguage 10.0.

Future Markets Research: https://tradesq.net/

Code Considerations

  • Entries type: 
    • Long only.
    • Short only 
    • Both.
  • Entries Direction: 
    • Mean Reversion.
    • Trend Following.
  • Exits:
    • Stop Loss
    • Profit Target: Stop Loss * 1.25
  • Trigger:
    • Mean Reversion:
      • Long when Close crosses below oversold.
      • Short when Close crosses above Overbought
    • Trend Following:
      • Long when Close crosses above oversold.
      • Short when Close crosses below Overbought
  • Values
    • Overbought: 70
    • Oversold: 30

Easylanguage code

Money flow easylanguage code

In order to make sure that Tradesq has my custom MoneyFlow function, I request it to be added to Function Library.

Now let’s proceed to upload the code into Tradesq and select the parameters, Markets, and Timeframe that we want to test:

Money flow system - Tradesq backtest

Note: I like to leave the last six months of unseen data, so tradesq will calculate until 06/01/2022. 

Results

We have a good number of edges on Indexes and very few on the other sectors.

Moneyflow system backtest results
Results filtered by (NP/DD>4, Number of trades above 200)

Let’s have a look at Some results:

Nasdaq (@NQ) 30min

Money flow system Nasdaq results

Nasdaq day session only (@NQ.D) 60min

Many flow system results - Nasdaq daily session only

VIX(@VX) 15min

Money flow system VIX results

Note: All results include trading costs, Slippage, and Commission.

Conclusion

It’s nice to find that we have other Oscillator options within trading. It could help us diversify and have an edge on the most common ones, as mentioned in the introduction RSI, CCI, ROC, etc. The Money Flow Index Oscillator showed outstanding opportunities in the Index Markets on the long-only positions and short on the VIX. It might need another filter to see if we could have opportunities in the other future sectors.

Author:

Juan Fernando Gómez

Email: jgomezv2@gmail.com

krisz
Log in