Screwed up definition of "money flow"?
What am I missing? can someone please explain to me how the following definition of "money flow" provided by msn investor makes sense in light of the question i have. Let's start with the definition. Here it is.
"A technical indicator that keeps a running total of the money flowing into and out of a security. Money flow (MF) is calculated daily by multiplying the number of shares traded by the change in closing price. If prices close higher, money flow is a positive number. If prices close lower, money flow is a negative number. A running total is kept by adding or subtracting the current result from the previous total.
When using MF to trade, the direction of the MF line is the thing to watch, not the actual dollar amount. This indicator will often confirm underlying strength or weakness of a price trend. It may also signal a top by declining while the stock is still rising, indicating big money is leaving the stock. Conversely, when MF rises in the face of a declining price trend could indicate smart money is moving in and a bottom may be at hand."
According to this definition, "if prices close higher money flow is a positive number. If prices close lower,money flow is a lower number." In other words if the price closes up then the money flow chart will go up and of course the opposite is true. Therefore, money flow and stock price move in the same direction, by definition. Given this, how can money flow decline when the price of the stock is still moving up as is discussed in the second paragraph? Similarly, how can there be a situation where "money flow rises in the face of a declining stock price"?
In conclusion, I have yet to see a money flow chart that does not track exactly the price chart. therefore, each and every money flow chart I have seen is virtually useless since it repeats what is already obvious from the price chart. Thoughts anyone?
P.S. the abvoe definition is inconsistent. |
