Twiggs Money Flow Indicator

Twiggs Money Flow is a technical analysis indicator that is used in forex trading to measure the buying and selling pressure of a currency pair. The indicator was developed by Colin Twiggs and is based on the idea that prices tend to close higher when buying pressure is stronger than selling pressure, and vice versa.

What is the Twiggs Money Flow Indicator?

The Twiggs Money Flow indicator is calculated by taking the sum of the money flow over a specific time period and dividing it by the sum of the volume over that same time period. The money flow is calculated by multiplying the typical price (the average of the high, low, and close prices) by the volume for that period, and then determining whether the result is positive or negative.

When the Twiggs Money Flow indicator is above the zero line, it suggests that buying pressure is stronger than selling pressure, and when it is below the zero line, it suggests that selling pressure is stronger than buying pressure. Traders may use the Twiggs Money Flow indicator to help identify potential trend reversals, confirm the strength of an existing trend, or generate trading signals when the indicator crosses above or below a certain level.

Twiggs Money Flow Indicator - Tradingview
Twiggs Money Flow Indicator – Tradingview

Key Features of the Twiggs Money Flow indicator

  • Measures buying and selling pressure: The Twiggs Money Flow indicator is designed to measure the buying and selling pressure of a currency pair. It takes into account both price and volume to determine the strength of these pressures.
  • Signals potential trend reversals: When the Twiggs Money Flow indicator crosses above or below certain levels, it can signal potential trend reversals in the market. This can be useful for traders looking to enter or exit positions.
  • Confirms trend strength: The Twiggs Money Flow indicator can also be used to confirm the strength of an existing trend. If the indicator is trending in the same direction as the overall trend, it can provide added confidence that the trend is likely to continue.

Twiggs Money Flow Strategy

Buy Signal

  • Look for bullish trend: When the price of a currency pair is trending downwards, but the Twiggs Money Flow indicator is trending upwards, this is known as bullish divergence. This can be a potential buy signal, as it suggests that buying pressure may be increasing even as the price is falling.
  • Wait for a cross above the zero line: When the Twiggs Money Flow indicator crosses above the zero line, it suggests that buying pressure is starting to outweigh selling pressure. This can be a potential buy signal, as it suggests that the trend may be reversing.
  • Look for a break of a key level: Traders may also look for a break of a key level on the Twiggs Money Flow indicator. For example, if the indicator has been trending downwards but then breaks above a certain level, this can be a potential buy signal as it suggests that buying pressure may be increasing.
Twiggs Money Flow Indicator Buy Signal
Twiggs Money Flow Indicator Buy Signal

Sell Signal

  • Look for bearish trend: If the price of a currency pair is rising but the Twiggs Money Flow indicator is falling, this is called bearish divergence. It can be a potential sell signal because it suggests that selling pressure may be increasing while the price is still rising.
  • Wait for a cross below the zero line: If the Twiggs Money Flow indicator crosses below the zero line, it indicates that selling pressure is becoming stronger than buying pressure. This can be a potential sell signal as it suggests that the trend may be reversing.
  • Look for a break of a key level: Traders may also observe a break of a significant level on the Twiggs Money Flow indicator. For example, if the indicator has been rising but then breaks below a certain level, it can be a potential sell signal as it suggests that selling pressure may be increasing.
Twiggs Money Flow Indicator Sell Signal
Twiggs Money Flow Indicator Sell Signal

Twiggs Money Flow Indicator Pros & Cons

Pros

  • Provides insight into buying and selling pressure: The Twiggs Money Flow Indicator helps traders to understand the buying and selling pressure in the market. This information can be used to identify potential trend reversals and confirm the strength of an existing trend.
  • Easy to use and interpret: The Twiggs Money Flow Indicator is easy to use and interpret, even for beginner traders. The indicator is calculated using simple formulas, and the resulting values are displayed in a way that is easy to understand.
  • Can be used in conjunction with other tools: The Twiggs Money Flow Indicator can be used in conjunction with other technical and fundamental analysis tools to make informed trading decisions. This can provide traders with a more complete picture of the market and improve the accuracy of their trades.

Cons

  • May generate false signals: Like all technical analysis indicators, the Twiggs Money Flow Indicator is not perfect and can generate false signals. Traders should always use the indicator in conjunction with other tools and strategies to reduce the risk of false signals.
  • Lagging indicator: The Twiggs Money Flow Indicator is a lagging indicator, meaning that it is based on past price and volume data. This can make it less effective in predicting future price movements than leading indicators.
  • May not work in all market conditions: The Twiggs Money Flow Indicator may not work well in all market conditions, such as during periods of low volatility or when there is no clear trend in the market. Traders should be aware of the limitations of the indicator and use it in conjunction with other tools to make informed trading decisions.

Conclusion

The Twiggs Money Flow indicator is a useful tool for forex traders to measure buying and selling pressure in a currency pair. It provides insights into potential trend reversals, confirms trend strength, and generates buy and sell signals. While the indicator has its limitations and may generate false signals, it can be used in conjunction with other technical and fundamental analysis tools to make trading set up for their technical bias on the market.

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