Strategy – Money Flow Index strategy
Using the MFI indicator is one of the most effective ways to make money using Binary Options in short periods. It’s one of the best five-minute strategies out there.
One of the things you need to know about trading Binary Options is that the market isn’t as random in the short term. Furthermore, since your capital will be blocked for a short time, you will be able to make many more trades in a day.
However, all short-term strategies are based on technical analysis, including this one. This is because no stock’s price rises or falls in the short-term because the company behind it is doing well or badly.
In short periods, the only thing that influences the price of assets is the supply and the demand. Technical analysis is the only way to understand if traders are buying or selling, and one of the best indicators that help you understand this relationship is the Money Flow Index (MFI) indicator.
The indicator compares the number of assets sold to the number of assets bought, generating a value between 0 and 100.
Here’s how the indicator works:
- If the value is 0, all the active traders want to sell the asset.
- If the value is 100, all the active traders want to buy the asset.
- If the value is 50, the number of active traders wanting to buy and sell the asset is equal.
If you understand the relationship between the traders that are buying and selling an asset, you can also estimate what will happen to the price of the asset since it is determined by supply and demand.
If too many traders have bought an asset, there aren’t many traders left to push the price upwards. The demand will go down, and the price will fall.
Similarly, if too many traders have sold an asset, there aren’t many traders to push the price down. The supply will exhaust, and the market will rise.
Now that you understand how the market works, here’s how you can use the MFI indicator to your advantage:
- If the MFI is >80, the asset is overbought, and the price will likely fall soon.
- If the MFI is <20, the asset is oversold, and the price will likely start to rise soon.
If you find that the MFI of an asset is >80, you can invest in a low binary option to make a profit. In contrast, if the MFI of an asset is <20, you can invest in a high binary option to make a profit.
The MFI strategy works exceptionally well in five-minute spans. However, in the long run, and in periods longer than a year, the MFI remains in the extremes.
The fundamental influences have a strong effect on the asset and will push the price in the same direction for years. Using this strategy to make long-term trades won’t work out well for you.
