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Any conventional technical analysis toolkit includes Classic Money Flow indices. McRibel.com believes that Trading Flow Analysis can be a better indicator of a real equilibrium between supply and demand.
Conventional Money Flow indicators are based on the assumption that raising the price of the stock is the result of the buyer’s activities and therefore money flows into the stock (money flow positive). A decline in the price of the stock is the result of the seller’s activities and money is leaving the stock (money flow negative).
Our approach is different. Trading Flow, calculated according to McRibel.com using a different assumption, we believe that all transactions at the ask price reflect the buyer’s activity therefore money flows into the stock (money flow positive). Transactions made at the bid price reflect the seller’s activity and therefore money flows out of the stock (money flow negative).
The cornerstone of Classic Money Flow indices is the change of a stock price. The cornerstone of McRibel.com trading flow is a balance between transactions made at bid and ask prices.
Let's look at the following examples and compare McRibel.com’s Trading Flow to a Classic Money Flow analysis.
|
PDLI |
Feb 5, 2002 |
Feb 6, |
Feb 7, |
Feb 8, |
Feb 11, |
Feb 12, |
|
Classical method |
||||||
|
High |
21,8 |
21,61 |
20,41 |
21,79 |
22,2 |
24,25 |
|
Low |
20,75 |
20 |
18,84 |
19,15 |
21,1 |
21,55 |
|
Close |
21,11 |
20,15 |
19,03 |
21,71 |
22,06 |
23,56 |
|
Volume |
2260700 |
2244700 |
3720600 |
3475400 |
3318900 |
5816700 |
|
Avg typical price |
21,22 |
20,59 |
19,43 |
20,88 |
21,79 |
23,12 |
|
Money Flow |
-47972054 |
-46210890 |
-72278856 |
72577936 |
72307768 |
134482104 |
|
Direction |
OUT |
OUT |
OUT |
IN |
IN |
IN |
|
Overall Flow to date (279367808 IN, -166461800 OUT): |
+112906008 IN stock |
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|
McRibel.com's method |
||||||
|
@ ASK |
911400 |
760000 |
1172800 |
1035800 |
1208100 |
2039500 |
|
@ BID |
740400 |
785100 |
1582600 |
1394600 |
1048600 |
2082200 |
|
Trading Flow |
171000 |
-25100 |
-409800 |
-358800 |
159500 |
-42700 |
|
Direction |
IN |
OUT |
OUT |
OUT |
IN |
OUT |
|
Overall Flow to date (330500 IN, -505900 OUT): |
-175400 OUT of stock |
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In the case of PDLI (Feb. 5 - Feb. 12, 2002) Classic Money Flow showed that on February 12th Money Flow was directed into PDLI (positive money flow). McRibel.com Trading Flow showed a negative money flow during the same period. It is obvious whose method represented a better picture of undergoing process when the stock depreciated by 31% or $7.5. While the conventional toolkit for technical analysis includes Money Flow Indicator and Money Flow Index, McRibel.com believes that only direct analyses of transaction records represents the true balance of supply and demand in a stock.
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Positive Trading Flow = Volume @ ASK Trading Flow = Volume @ ASK - Volume @ BID |
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1. Typical Price is calculated :
2. Money Flow is calculated by multiplying Typical Price by the volume
If Typical Price of today is greater than yesterday's, it is considered Positive Money Flow. If today's price is less, it is considered Negative Money Flow. Positive Money Flow is the sum of the Positive Money over the specified number of periods, and Negative Money Flow is the sum of the Negative Money over the specified number of periods. 3. Money Ratio is calculated by dividing the Positive Money Flow by the Negative Money Flow.
4. Money Flow Index is calculated using the Money Ratio |
