Market Facilitation Index
The Market Facilitation Index (MFI) is an indicator created by Bill Williams that compares price movement to volume. It aims to show how efficiently the market moves for each unit of volume traded. A higher value suggests price is moving more per unit of volume, while a lower value suggests less progress for the same volume.
Formula
MFI = (High - Low) / Volume
Some traders compute the value per bar and then interpret it alongside changes in volume rather than the absolute value alone.
Interpretation using bar types
A common approach uses the change in MFI and volume to label bars:
- Green: MFI up, volume up. Price is moving and participation is rising.
- Fade: MFI down, volume down. Activity and movement are both slowing.
- Fake: MFI down, volume up. Heavy activity with little progress can signal absorption.
- Squat: MFI up, volume down. Price moves on light volume and can reverse.
Example
A stock prints a wide range bar on lower volume, causing MFI to rise while volume falls. A trader marks it as a squat bar and watches for a reversal if follow through is weak.
Practical notes
MFI is most useful as context, not a standalone signal. It can highlight when momentum is supported by real participation or when movement may be fragile.
Practical checklist
- Define the time horizon for Market Facilitation Index and the market context.
- Identify the data inputs you trust, such as price, volume, or schedule dates.
- Write a clear entry and exit rule before committing capital.
- Size the position so a single error does not damage the account.
- Document the result to improve repeatability.
Common pitfalls
- Treating Market Facilitation Index as a standalone signal instead of context.
- Ignoring liquidity, spreads, and execution friction.
- Using a rule on a different timeframe than it was designed for.
- Overfitting a small sample of past examples.
- Assuming the same behavior in abnormal volatility.
Data and measurement
Good analysis starts with consistent data. For Market Facilitation Index, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.
Risk management notes
Risk control is essential when applying Market Facilitation Index. Define the maximum loss per trade, the total exposure across related positions, and the conditions that invalidate the idea. A plan for fast exits is useful when markets move sharply.
Variations and related terms
Many traders use Market Facilitation Index alongside broader concepts such as trend analysis, volatility regimes, and liquidity conditions. Similar tools may exist with different names or slightly different definitions, so clear documentation prevents confusion.
Practical checklist
- Define the time horizon for Market Facilitation Index and the market context.
- Identify the data inputs you trust, such as price, volume, or schedule dates.
- Write a clear entry and exit rule before committing capital.
- Size the position so a single error does not damage the account.
- Document the result to improve repeatability.
Common pitfalls
- Treating Market Facilitation Index as a standalone signal instead of context.
- Ignoring liquidity, spreads, and execution friction.
- Using a rule on a different timeframe than it was designed for.
- Overfitting a small sample of past examples.
- Assuming the same behavior in abnormal volatility.
Data and measurement
Good analysis starts with consistent data. For Market Facilitation Index, confirm the data source, the time zone, and the sampling frequency. If the concept depends on settlement or schedule dates, align the calendar with the exchange rules. If it depends on price action, consider using adjusted data to handle corporate actions.
Risk management notes
Risk control is essential when applying Market Facilitation Index. Define the maximum loss per trade, the total exposure across related positions, and the conditions that invalidate the idea. A plan for fast exits is useful when markets move sharply.
Variations and related terms
Many traders use Market Facilitation Index alongside broader concepts such as trend analysis, volatility regimes, and liquidity conditions. Similar tools may exist with different names or slightly different definitions, so clear documentation prevents confusion.
Practical checklist
- Define the time horizon for Market Facilitation Index and the market context.
- Identify the data inputs you trust, such as price, volume, or schedule dates.
- Write a clear entry and exit rule before committing capital.
- Size the position so a single error does not damage the account.
- Document the result to improve repeatability.
Common pitfalls
- Treating Market Facilitation Index as a standalone signal instead of context.
- Ignoring liquidity, spreads, and execution friction.
- Using a rule on a different timeframe than it was designed for.
- Overfitting a small sample of past examples.
- Assuming the same behavior in abnormal volatility.