Money Flow

Got your eyes on the digital currency trading scene? Excellent! By now, you've probably come across the term 'Money Flow'. Being a crucial aspect of option trading, understanding this concept is a must. But don't worry, we'll break it down for you.

What is Money Flow?

Money Flow refers to the total amount of money going in and out of a particular cryptocurrency. In simpler terms, it shows whether more money is flowing into the asset (buying pressure) or flowing out of it (selling pressure).

Money Flow Index (MFI)

One way to monitor Money Flow is by using the Money Flow Index (MFI). This oscillator measures the inflow and outflow of money into an asset over a specific period. It is similar to the Relative Strength Index (RSI), but while RSI only considers prices, MFI also takes into account trading volume. This makes it a more robust and reliable index.

Importance of Money Flow in Option Trading

In option trading with cryptocurrencies, Money Flow provides a glimpse into the market sentiment about a certain digital asset. When there's a high Money Flow, it often means that the market is bullish, and the prices may rise. However, a low Money Flow implies a bearish market sentiment where the prices are expected to drop.

How to Use Money Flow for Trading Decisions

To use Money Flow in your trading plan, keep an eye on the MFI. An MFI value above 80 suggests that the cryptocurrency is overbought and hint a trend reversal. On the other hand, an MFI value below 20 indicates that the cryptocurrency is oversold and may about to move upwards. Accordingly, traders might want to buy or sell their options.

Remember! Money Flow is just one tool in your trading toolkit. Always cross-check with other indicators and consider market news before placing any trades.