Any time we trade an asset, we need to know if money is flowing in or out.
After all, if it’s flowing out, that could be an indication of downside. If it’s flowing in, that simply means there’s potential upside.
But what if we could tell with uncanny accuracy when money if about to flow in or out?
We actually can by using the Money Flow Index, or MFI.
For example, if MFI is below 20, the stock is considered oversold.
If MFI is above 80, the stock is considered overbought.
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About 80% of the time, when Money Flow dips well into oversold territory it’s likely to bounce higher. The same with overbought situations too.
While it often works best with bigger, higher-volume stocks, let’s use OrganiGram Holdings (OGRMF) as our example. Take a look at what has happened since March 2017.
Nearly every time MFI moved to or above the 70-line, OGRMF pivoted lower. It was an indication of a change in money flow. Now, look at what happens when MFI drops to or below its 20-line. Nearly every time OGRMF pivots and moves higher.
With each case, we could tell when money flow was about to pivot, along with the stock.
Of course, no technical pivot point should every be fully relied upon. Instead, it’s essential that you use other confirming indicators, such as Bollinger Bands (2,20), MACD, RSI, Williams’ %R, Parabolic SAR, and other Stochastics.
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