Bill Williams Indicators. Trading Binary Options and the Market Facilitation Index
What is Important
Again, we are dealing with a Bill Williams indicator, but this time, the indicator is blended with the Volume indicator. Not everything goes smooth with this indicator since there are two major issues that traders can face when using this tool.
The first issue is that it repaints. This further means that no back-testing or history search can be conducted since it will result in false and inaccurate information. This is a natural process when an indicator is subject to repainting, and experienced traders know that fake signals will be retrieved if any back tests are conducted when using this indicator.
Every time, back-testing is disabled, suspicion among traders and experts rises since the theory has no solid foundation. So, it can easily happen that trading in this way, you get a series of profitable trades, only to be followed by a longer series of trading losses.
The second issue with this indicator is that it is linked to the volume indicator, whereby the volume indicator comes with its own issues, since it does not really depict the real volume of the overall market, but only the volume provided by the broker you use for this analysis.
After we have identified the biggest weak spots of this indicator, let us now focus on how it can be used and where are its strengths. Some of you may be discouraged so far, but read further to get an overall picture of the indicator’s performance. There are a plenty of useful information hat this oscillator gives; one has only to know how to use it.
With this indicator, traders are presented with four potential candles which come in different colors but are combined with the Market Facilitation Index (MFI) and the volume. The candle will be green when both, volume and MFI are up, whereby it is blue when volume and MFI have opposite directions, i.e. when the volume is down and MFI up.
The Purpose of the MFI Indicator
As there were two ways how not to use the indicator, there are also two useful strategies whereby the indicator can signal great future price actions, not only in the binary options market but also in the Forex industry.
The first strategy is to filter the signals relying on MFI and volume only when they are headed towards the same direction, whereby call options should only be placed when a green candle is presented on the indicator.
The second strategy is to look for the timing when both, volume and MFI are down, which would include a blue candle.
The greatest trading platforms come with pretty much everything, with lots of options and automatic variations, and this indicator is not an exception. For example, it is ready-available with the renowned MetaTrader 4 platform, which among others has this indicator as well. This indicator can be conveniently found under the Indicator button, and after selecting Bill Williams, the MFI window will pop out including the colour code and volume. The colour code is default but customizable. This means that you are free to change the colours.
How to Draw the Oversold or Overbought Line?
When using this indicator, the candles under the chart will feature only positive values since the minimum limit of this MFI Index is zero and there is no further lower limit. Some traders might opt for using oversold or overbought markets to trade with the indicator, but perhaps this could go wrong. To take on such a risk, one has to identify the overbought and oversold levels, which is not always easy. This is what they have in common with the Gator oscillator, which exhibits similar behaviour in this situation.
Since the candles are dependent on the volume, the levels will display a strong candle move on the downside or the upside depending on whether the market is bullish or bearish. If a trader decides in this situation to examine levels from the past, s/he might do so, but they should make a horizontal line on the window of the oscillator. When the candle indicates that the volume crosses the line whereby the price is bearish, call options are recommended, since it indicates an oversold market. Of course, put options should be traded when the opposite is the case, i.e. when the price is bullish, but the candle is still over that line.
Still, even if we see that it is possible in some situations, traders should bear in mind that it repaints and therefore, it is not going to be useful all the time, especially not when treated as the only factor when making a trading decision.
Volume analysis also requires special attention, since the information indicated by the broker is not sufficient, given that it originates from the broker’s client and can in no way provide complete information on the overall market volume. It has to be blended and combined with other factors to make it relevant.
Creating the Perfect Environment
If you want to create the perfect trading conditions, then, the MFI indicator should be combined with another oscillator, after which divergence patterns with strong volume should be tracked down, before making a trading decision. Once the patterns are identified, it is time for action. The divergence on the second oscillator will decrease the repainting risk of the MFI. In order to avoid additional confusion, it is recommended to keep the number of used oscillators low, since the more oscillators are involved, the greater the odds of making mistakes.
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