is money flow a good indicator ?

Discussion in 'Technical Analysis' started by fortuna, Sep 8, 2003.

  1. fortuna


    Money flow quantifies the amount of money going
    into or out of a security.

    Money flows are only calculated when the price of the
    security changes and include only those trades from the security's primary

    The value of money flow is set to zero at the start of the trading day. When
    a trade is performed, its price is compared to the price of the previous trade
    (the first trade of the day is compared to the previous day's close). If the
    prices differ, the money associated with the trade (price times number of
    shares) is added to or subtracted from the money flow. Additions (inflows,
    buys) are done on upticks; subtractions (outflows, sells) are done on

    I assume that this indicator is much more efficient than the up down ratio.

    Did anyone made some research about it ?
  2. CWU


    Here's a question and answer relative to MF. The question is from a TC2000 subscriber and the answer is from Don Worden, head cranky old man at same.

    Mr. Don Worden,
    I have been a subscriber to your wonderful service for over 5 years and will be as long as I am capable of investing. Thank you and your sons.
    I was an early subscriber to your newsletter on "Tick Volume" and was very impressed. If I am correct, I believe that your current "Money Stream" is an outgrowth of that concept. My question is how many ways can there be to measure the volume of money flowing into a stock. Laszlo Birinyi frequently mentions that he measures money going into and out of all stocks, "by computer." But I have never heard him explain the method. Investors Business Daily uses "Accumulation and Distribution" to measure the same thing. If these three methods are valid will they all give the same answer? Or, as I hope, is your method truly unique and superior to other methods. Thank you again. JJC

    (Answer): There is an article on this in the on line Users Guide, but it doesn't mention any names. I invented “Tick Volume” in the late 50s. In the 60s I popularized it widely. Tick Volume is a tally of all individual transactions that pass on the tape, giving naturally greater weight to large transactions. Originally it had a phenomenal ability to contradict immediate price trends, effectively forecasting future moves in the opposite direction. However, as the market gradually went from 90 percent public dominated to 90 percent institutionally dominated, the large transactions developed an overwhelming negative bias. Eventually, after many years, I developed other tools, such as BOP, and I dropped “Tick Volume” entirely. It was carried on for a while by a brokerage firm named Muller and Company, who had been computing the data for me. They went out of business and, next thing, what do you know, a young guy named Laszlo Birinyi turns up with “his” invention, “Money Flow.” “Money Flow” is “Tick Volume” with the same flaws now as it had then. As a matter of fact, others also use it and publish it (including IBD). It was never protected under the patent laws and Mr. Birinyi is within his legal rights to publish “Tick Volume” and call it whatever appeals to his considerable promotional judgment. But I don't think I would ever sit down and break bread with Laszlo Birinyi. -DW
  3. momentum indicators usually requires trendlines, indicative of some pattern that's evident and chartable...

    Money Flow, without it being "smoothed" usually causes blips on a "True" chart. Simply put, when a $20 million dollar order is placed, traded and finished, there's no correlation to any other order whether before or after it. Hence, that blip of trading fury, after subsiding has no correlation or predictive indicator of any future event.

    MF as a trading vechicle in highly trafficed stocks, like IBM, DELL, INTC, MSFT, C, JBLU, etc. takes on another dimension, more akin to how that indicator is sold.

    Because of the stock being in a well trafifced index, or within multiple indexes, then one could expect that coincidence occurs more than once, and hence that $20MM order just might beget other discretionary orders.

    jury is still out on this one, however, you can cast your vote along with your money on your next order (that you used Money Flow as a deciding factor).
  4. Laszlo Birinyi ( formerly of Salomon Bros in the 80's ) of Birinyi Associates in Westport, CT swears by MONEY FLOW, but I once saw him buy Blue Chips in the market all the way down in 1998 and get crushed using his money flow indicators.
  5. ever hear him speak on the business channels in the morning pre-market trading?

    Kermit The Frog comes to mind, in fact one of the better traders used to call him that all the time, without disrespect, of course.

    Anyways, when you come up with a unique method of analysis, you should be the one supporting it, as he has all these years.

    Whenever you mention Westport, CT, you mention money and lots of it. They are the poor, uh, afordable neighbor to Greenwich, Cos Cob and similar such names. (big deal....)
  6. Hardly!

    I wouldn't call Michael Bolton, Nigel Rogers, Paul Newman, and Martha Stewart "poor" let alone living in the more "affordable" town down the road.