Technical Analysis, Studies, Indicators:
Twiggs Money Flow (TMF)
Twiggs Money Flow indicator was developed by Colin Twiggs for incrediblecharts to improve Chaikin Money Flow (CMF). The main idea behind the TMF indicator is to evaluate volume (money flow) as bullish or as bearish based on a close price location. Chaikin Money Flow uses CLV (Close Location Value) to do it. Twigs Money Flow, on the other hand, uses TR (True Range). Another main difference is that CMF uses cumulative volume (sum of volumes over specified period) and the TMF applies Moving average to the volume.
Analysis, Signals, Trading Systems
From the TMF formula you may see that it is calculated as percentage ratio between MA applied to weighted volume and volume MA. Where weighted volume (named as Range Volume by Colin Twiggs) uses close price location in relation to True High and True Low as weighting coefficient. Respectfully, when close price is located at True High, 100% of volume is considered as bullish volume. When close price located at True Low, 100% of volume is considered as bearish volume. And, when Close price is exactly in the middle between True High and True Low then weighed volume (range volume) is equal to zero.
The same as with CMF, the positive TMF readings is a sign of the bullish pressure and negative TMF readings is the indication of bearish sentient. Furthermore the simplest way of using the Twiggs Money Flow indicator would be to buy when it turns positive and to sell when it turns negative. Also, bullish signals could be generated when bullish divergence is noted and sell signals could be generated on bearish divergence.
TMF is quite choppy indicator, that is why in some cases it could be recommended using moving average applied to it. On our charts you may see this MA as a signal line applied to TMF. In this case, signals could be generated on the crossovers of the signal line and zero line, on the crossovers of the TMF and the signal line and on the divergence of the signal line.
You may see recommended TMF settings on the TMF trading system scan results.
Chart 1: DJI chart Volume Price Trend (blue line) and its Signal Line (red line)
On the DJ
Formula and Calculations
Twiggs Money Flow calculation could be split into several steps:
- Calculate Highest High (HH) and Lowest Low (LL)
LL = minimum(current low or previous close)
HH = maximum(current High or previous close)
- Calculate TMF (Twiggs Money Flow):
TMF = EMA[Volume *((Close - LL) / (HH - LL) * 2 - 1 )] / EMA[Volume] * 100
or by steps:
- calculate range
Range = (Close - LL) / (HH - LL) * 2 - 1 )
Range = (2*Close - LL- HH) / (HH - LL)
- Calculate Range Volume (weighed by the Range volume)
RangeV = EMA (Volume * Range)
- Calculate TMF
TMF = RangeV / EMA(Volume) * 100
- calculate range
- Apply EMA to TMF as second signal line
TMF Signal Line = EMA(TMF)
By Victor Kalitowski for MarketVolume.com
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