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MFI Binary Options Indicator

Written By

William Berg

Written By

William Berg

William contributes to several investment websites, leveraging his experience as a consultant for IPOs in the Nordic market and background providing localization for forex trading software. William has worked as a writer and fact-checker for a long row of financial publications.

» William Berg Profile Page

Edited By

Tobias Robinson

Edited By

Tobias Robinson

Tobias is a partner at DayTrading.com, director of a UK limited company and active trader. He has over 25 years of experience in the financial industry and contributed via CySec to the regulatory response to digital options and CFD trading in Europe. Toby’s expertise and dedication to financial education make him a trusted voice in the industry, including a BBC investigation into digital options.

» Tobias Robinson Profile Page

Updated

May 31, 2024

The MFI binary options indicator is short for Money Flow Index and is a valuable tool in the arsenal of many traders. The technical indicator essentially uses price and volume data to produce overbought or oversold signals. This MFI binary options indicator review covers how to set it up and interpret the meaning of its results, a summary of its pros and cons, suitable strategies, and more.

MFI Binary Options Indicator Basics

The MFI binary options indicator measures investor sentiment in an asset. The indicator uses price and volume data as variables to produce a value based on how much money is being used to purchase an investment versus how much is being sold.

The MFI is classed as an oscillator and returns values between 0-100 based on buy/sell ratios. Using the value of the MFI binary options indicator, signals are created which indicate whether a specific stock, index, crypto or other asset is overbought or oversold.

When an MFI value reaches above 80, an asset is classed as overbought, potentially signalling a price correction to a lower level in the short term. Conversely, MFI numbers below 20 signify that an asset is oversold, signalling that a price value may increase in the short term.

Using The MFI Indicator In Binary Options Trading

The MFI indicator is handy for binary options trading as it requires limited investor input and can use real-time market data to generate fast signals. In addition, the indicator is easy to interpret, meaning it is well-suited to beginners and simplified binary options trading platforms.

Also, the ability of the MFI binary options indicator to predict momentum swings through divergences allows traders to create evidenced, short-term price predictions. And these short-term movements are often the most lucrative for binary options traders.

Examples Explained

Here are three examples of how traders can use different MFI binary options indicator values to inform their trades…

Trader A is a crypto enthusiast using a binary options broker to speculate on the price of one of his favourite coins, Solana.

Solana is trading at $29.435 and Trader A thinks they spot an opportunity to profit. They use the MFI binary options indicator to conduct technical analysis.

After 10 minutes, the MFI value suddenly plummets to 4.02. This strong oversold signal suggests a potential price correction within the short term. As a result of this notable value, Trader A opens a long position on Solana with an expiry time of two minutes.

Trader B is a keen forex trader and wants to capitalize on the high payouts for correct binary options prediction on this market. They are using an MFI binary options indicator to analyze the EUR/USD market, which sits at 0.98685 at 22:18.

They see that despite the falling value of EUR/USD, the MFI value is steadily increasing. This slight divergence suggests that the downward trend may be curtailed and the price could rebound in the short to medium term. As a result, they place a five-minute binary options contract going long on the asset.

Trader C is looking to make a trade on a popular and liquid US stock, Alphabet. Google’s parent company is trading at $100. Trader A uses the MFI binary options indicator to help predict which direction the stock price will move.

For the last five candle intervals of 1 minute, the MFI value has gradually increased from 55 to 75. This indicates a positive short-term trend where more investors have been purchasing the stock than selling it.

Based on these values, Trader C concludes that there is significant buy pressure on Alphabet and that the stock price may continue to rise. Accordingly, they place a long binary options contract on the stock with an expiry time of 10 minutes.

Availability

Our experts found that a limited number of proprietary binary options platforms support the MFI binary options indicator. Also, many do not support additional indicators, even when using an adapter or downloading an extension. Instead, most favoured the RSI indicator, which does not consider the trading volume and paints a less complete picture.

Fortunately, binary options brokers that used third-party trading platforms, such as MetaTrader 4 (MT4), TradingView or NinjaTrader, offer a more complete range of technical analysis indicators and tools. As a result, the MFI binary options indicator can often be used for free on training accounts with third-party platforms.

The indicator is even so simple that the MT4 mobile trading apps for iPhone and Android could easily run and display it in real-time.

Pros Of The MFI Binary Options Indicator

• Momentum-based indicator – This indicator is particularly well suited to binary options trading due to its focus on short-term momentum
• Multi-use – Investors can use the MFI binary options indicator to predict a range of price movements and trends spanning multiple underlying assets, from stocks and forex to hard and soft commodities, plus cryptos
• Easy to set up – Limited input is needed from investors to use the MFI binary options indicator
• Simple to read – There is a single value generated by the oscillator, keeping the signals simple

Cons Of The MFI Binary Options Indicator

• Not well supported – Despite the simplicity of the MFI binary options indicator, some brokers do not support it on their proprietary platforms. Instead, traders may need to use third-party platforms like MT4
• Can be unreliable – The MFI binary options indicator is error-prone and can produce false signals, particularly in the case of zoning in on divergences. This can lead to incorrect price predictions and may result in losing trades
• An incomplete picture – When only looking and buy and sell volume, other important factors regarding a stock or asset may be missed, such as the health of the company. Also, the indicator only focuses on past data and information
• Divergences are rare – Arguably the most telling signal provided by the MFI binary options indicator, the divergence, does not occur very often

Strategies

Investors can utilize several trading strategies with data from the MFI binary options indicator. Traders can use binary options demo accounts to test these strategies for free on specific assets, as some markets, such as cryptos, may be more suited to MFI analysis.

Following Trends

In our earlier examples, Trader C followed an MFI binary options indicator trend signal. Traders can identify the indicator as signalling a trend when the MFI value shows consistent increases or decreases.

This is perhaps the most simple signal to follow, and investors can frequently enact the strategy. However, individual investors have to decide what constitutes a ‘‘consistent’’ trend here, as well as the size of the overall movement that indicates a signal.

These trends are short to medium-term signals, often suited to a one-minute binary options strategy up to 15-minute contracts.

Overbought & Oversold

When the MFI binary options indicator value is close to zero or 100, the indicator signals that a security or asset is oversold or overbought. This is the strategy that Trader A used in our earlier example.

Most MFI indicators have threshold values of over 80 for an overbought asset and below 20 for an oversold one. However, some investors may wish to alter these to 90 and 10, or even 95 and 5. Striking a balance between the number of actionable live signals and their strength is up to each trader, depending on their error/risk tolerance.

When the MFI indicator signals an asset is oversold, traders following this strategy will want to open a long position on an investment. Binary option contract lengths from 30 seconds to two minutes could work well here.

Conversely, when investors see an overbought signal, this strategy would look to open a short position. Again, traders can use 30-second to two-minute binary options contracts.

Divergence

Divergence is less common with the MFI binary options indicator but arguably the most powerful strategy for making accurate predictions. Trader B opened a position on a slight divergence, which they believed indicated an imminent momentum shift and price reversal.

The divergence strategy often involves medium to long-term binary options contracts, as turnarounds in the market may take longer to manifest. Binary options traders can target contract lengths of between five and ten minutes for liquid assets and test the efficacy of extended contracts if trading a more obscure security.

How To Set Up The MFI Binary Options Indicator

1. Find Your Trading Asset – Before setting up the MFI binary options indicator, navigate to the section of your trading platform that covers your chosen trading asset. This can normally be accessed by typing in your security from the central hub of the platform, usually through a search bar.
2. Add The Indicator – Now that you are on the page of the asset you wish to analyze, it is time to add the MFI binary options indicator to the chart or graph. Navigate to the indicator menu in your platform and either type in ‘MFI’ or manually select ‘Money Flow Index’ from the list.
3. Adjust The Indicator – The indicator may ask you to define the overbought and oversold ranges. Investors can either leave these values at the standard 20 and 80 levels or adjust them based on their personal preferences. Additionally, most platforms will place this indicator at the bottom of your screen. This works for many investors, but those who wish to reposition it can click and drag the data set to another location on the trading platform. Furthermore, the MFI binary options indicator will readjust for different intervals as you zoom in and out on an asset’s price history, so try it out for different time frames.
4. Monitor The Values – Whether you’re looking for divergence, strong trends or overbought and oversold zones, your next step is to monitor the MFI binary options indicator values to identify signals. Some platforms facilitate setting custom alerts when a parameter is reached. A few, using an adapter or extension, will allow you to automate the trading process.

Final Word On The MFI Binary Options Indicator

The MFI binary options indicator can provide useful signals for trading. It provides public insights into trader sentiment and potential upcoming short-term momentum shifts. This indicator is best utilized with other tools to produce a more holistic picture of an asset. Disappointingly, not many binary options platforms support this indicator, but its availability enhances those that do.

FAQs

Is The MFI Binary Options Indicator Free?

For the trading platforms we found supporting the MFI binary options indicator, there was no charge to add it to a graph and use it for analysis.

Can I Get The MFI Binary Options Indicator For MT4?

Yes, the MFI indicator comes as standard in the MT4 trading platform. However, not all binary options brokers and groups offer the MetaTrader 4 platform.

Why Is The MFI Binary Options Indicator Not Working?

No indicator will be effective 100% of the time. If your error tolerance is lower than the signals being put out by this indicator, consider changing your values from the standard 80/20.

Which Indicators Are Best For Binary Options Trading?

The MFI indicator is an excellent choice for binary options traders as it offers insight into short to medium-term trends and momentum changes. This indicator is also effective in combination with other tools, such as the MACD and Bollinger Bands.

Can I Test The MFI Binary Options Indicator?

Most binary options platforms support free demo programs where investors can connect and test new indicators and strategies using paper funds.