Twiggs Money Flow – Not What Its Cracked Up To Be
I began researching this article with the intention of discovering a new and useful technical indicator. I am always on the hunt and at first glance this one struck me as valid, useful and an improvement upon previous work. The TMF (Twiggs Money Flow) is an indicator that is based on Chaiken’s Money Flow and supposedly similar in nature to the Relative Strength Index. Twiggs is commonly used in forex trading which made it an attractive possibility for my binary trading. What I found is that the indicator comes with a lot of explanations that didn’t add up to what I found on my charting package.
What Is Twiggs Money Flow Indicator
The TMF is yet another price/volume oscillator claiming to have solved the problems faced by other indicators. These problems are the effects of extreme data indicators, their susceptibility to false signals and chart anomalies. The indicator is based on Chaiken’s Money Flow and utilizes volume as a measure of market conviction. It seeks to weed out false signals and smooth the signal line created by CMF. Chaiken’s is based on the Accumulation/Distribution line and simple moving averages. This methodology does not take gaps into account and can provide false signals, especially when extreme data falls out of the sample period.
In order to alleviate his indicator of those burdens Twigg’s Money Flow utilizes true range and exponential moving averages. By using true range the highs and lows of the previous day are taken into account, providing a methodology that will includes gaps. This is how it works. To calculate the true range of today’s movement you take the higher of yesterday’s close/today’s high and the lower of yesterday’s close or today’s low. This method creates a two day candle that incorporates any gaps in price movement.
This indicator seeks to quantify the amount of money flowing into or out of the market. It utilizes volume and assumes that in a bull market prices will close in the upper half of the range and that the reverse is true in a bear market. The indicator is intended to confirm breakouts and trends. The website describes the indicator as an oscillator moving above and below the zero line. The indicator is supposed to give signals based on extreme spikes, divergences and convergences.
Why Twiggs Money Flow Sucks
Twigg’s Money Flow Sucks for one primary reason, the indicator I found on my charting package does not work the way it is described by its creator. I use OptionsXpress for my charts and am very happy with the package. Twigg’s is displayed on these charts as a line fluctuating between 0 and higher numbers. It does not, at least when I was using it, oscillate above and below 0.
When I compared it to RSI, Chaiken’s Money Flow and the Accumulation/Distribution Line I was surprised to see that it tended to move opposite to all three of those other indicators. I was also surprised to see that I could not see any easily recognizable signals coming from it. The other three indicators, when looking over the past 3-5 years, converged, diverged and confirmed most of the major S&P 500 moves. They did not all make clear signals every time but they did make better and more easily recognizable signals than Twiggs.
Why Twiggs Money Does Not Suck
The indicator doesn’t suck because it honestly tries to provide good signals. The math and theory behind the indicator is sound and the way it is described on the website makes it seem like a good indicator. I’m sure with some more knowledge I will be able to make sense out of the indicator as it is displayed on my charting package.
My Last Word On Twigg’s Money Flow
This is an indicator that I will be investigating further. I am not going to start using it but I would like to know more about it and how it is used to generate signals. At this time I think it sucks more than it doesn’t suck but I am not discounting it completely. As a long term indicator I don’t see the use, I have many other tools that are more reliable. As a short term indicator, if I can learn to read it, it may have some use in binary options.
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