Casey,
Chaikin's Money Flow index can be a useful tool, but I doubt you will find its divergences have a 90% predictive accuracy. Even in the instance with TTRIF that you correctly illustrate, the next divergence gives the wrong signal. From a peak of 76 on 3/20, the MF fell to 41 on 4/14 while the price rose from a low of $1.09 to $1.28---a bearish divergence. However, what actually happened next was a run from $1.28 to $1.88--not a fall in price as the MF would indicate. The free sites for TA on the net are OK to learn the basics, but they are pretty limited.
Chaikin's MF index is one of 52 indicators in Windows on Wallstreet that you can vary to your hearts content plus build unlimited custom indicators, like doing a Stochastic of RSI. You can also back-test a formula to see how it would have signaled buys or sells and what profit or loss would have ensued. When you have the time to really get into TA, this is the way to go. Matter of fact, since the Money Flow index is really just Wilder's RSI with volume substituted in the formula for closing price, then should be able to devise a formula for creating a Stochastic of MF. The advantage of doing a Stochastic of RSI over simply using RSI or Stochastics separately is that the timing of overbought/ oversold is far, far more pinpoint. Creating a Stochastic of MF might give definite buy or sell signals whereas MF alone simply tells you if there is accumulation or distribution--it really doesn't tell you when to act.
If I can come up with a workable formula for taking the Stochastic of MF, I'll let you know.
Regards,
Gary |
