Indicator Explained: Twiggs Money Flow

The most valuable method to predict major market moves and capture significant profits is by tracking the smart money, how it moves and the key indicators signaling which way the money is flowing.

A critical factor to track where the Smart Money is going is Twiggs Money Flow (TMF)

Developed by Collin Twiggs, this indicator is based on Chaiken’s Money Flow and utilizes Volume as a measure of market conviction. It seeks to weed out false signals and smooth the signal line created by CMF. Chaiken’s is based on the Accumulation/Distribution line and simple moving averages.

This indicator seeks to quantify the amount of money flowing into or out of the market. It utilizes volume and assumes that in a bull market prices will close in the upper half of the range and that the reverse is true in a bear market.

The indicator is intended to confirm breakouts and trends. The indicator is an oscillator moving above and below the zero line. The indicator is supposed to give signals based on extreme spikes, divergences and convergences.

Tracking if a stock has the key factors that define a true UP trend:

  • Price making higher highs and higher lows

  • Higher amounts of money or volume trading in the stock each day

  • Closing higher and higher in its daily trading range

  • Whether the range is expanding or contracting

If all of these qualities are in play traders agree this confirms an uptrend is truly in place and therefore the smart money is likely accumulating a position in the stock/index the indicator is applied to. If this is taking place, the indicator will rise in value and continue to make new highs along with the stocks movement.

  • If we see that the level of the stock is increasing and this indicator is going the opposite way, it could quite likely indicate that a bubble is building. This is called the distribution zone and means the rally that the stock or index is enjoying is likely the smart money off loading their positions to the public before a big drop takes place.

  • Inversely, if we see that the price level of a stock is dropping but the Twiggs Money Flow is moving opposite this, in the upwards direction, than this indicates accumulation is going on and a possible strong reversal could be coming in the stock.

The Twiggs Money Flow is based on the observation that

  • Buying support is normally signaled by increased volume and frequent closes in the top half of the daily range. Likewise,

  • Selling pressure is evidenced by increased volume and frequent closes in the lower half of the daily range.

Twiggs Money Flow signals accumulation if above zero, while negative values signal distribution. The higher the reading (above or below zero), the stronger the signal.

  • Go long if a breakout above resistance is supported by Twiggs Money Flow above zero.

  • Go short if a breakout below suport is confirmed by negative Twiggs Money Flow.

Twiggs Money Flow Divergence Breakout: If you wanna catch a perfect shorter term up trend

Stocks that are showing signs of Accumulation: this is as evidenced by divergence between price and a key type of accumulation indicator – Money Flow.

This often indicates that “smart money” is accumulating stock at current (see depressed) prices. It indicates that someone with big pockets see’s value at the current price level and anticipates much higher prices in the future.

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