A flaw with money flow indices

Before concluding this chapter, I’d like to point out a flaw with all the money flow indices I’ve discussed. It’s one that’s not usually mentioned. All the indices compare one price to another to decide whether money flow is positive or negative. The MFI compares today’s average price with yesterday’s, and CMF and TMF compare the closing price to the mid-point price. But as I pointed out in chapter 9, significant price moves can occur on relatively small volumes and give a false impression. For example, suppose today there’s been good buying support and the price rises strongly on high volumes. This exhausts buying support at the higher prices. Some low-volume sellers move in, and the price drops to below the mid-point price at close. The ....