Twiggs Money Flow – What It Is & How to Trade with It

Twiggs Money Flow – What It Is & How to Trade with It

What is Twiggs Money Flow (TMF)?

The Twiggs Money Flow (TMF) is a volume-weighted indicator developed by Colin Twiggs, based on the Chaikin Money Flow (CMF). TMF refines CMF by incorporating Exponential Moving Averages (EMAs) to smooth fluctuations and provide more reliable signals for trend confirmation and reversals.

The TMF formula is:
TMF = (21-day EMA of Money Flow) / (21-day EMA of Volume)

Where:

• Money Flow = (Close – Low) – (High – Close) / (High – Low) × Volume
• 21-day EMA smooths the data for better trend analysis.

Key Features of Twiggs Money Flow

• Measures accumulation (buying pressure) and distribution (selling pressure).
• Values above zero indicate bullish momentum, while values below zero indicate bearish momentum.
• Works well for trend confirmation and divergence analysis.

How to Use TMF in Forex Trading

1. Trend Confirmation Strategy

TMF helps traders confirm market trends based on volume participation:

• Buy Signal: TMF is above zero, confirming bullish pressure.
• Sell Signal: TMF is below zero, confirming bearish pressure.

2. TMF Divergence Strategy

Divergence between TMF and price action can indicate potential trend reversals:

• Bullish Divergence: Price forms a lower low, but TMF forms a higher low (buy signal).
• Bearish Divergence: Price forms a higher high, but TMF forms a lower high (sell signal).

3. TMF Breakout Strategy

TMF can confirm breakout strength by measuring volume participation:

• Buy when: Price breaks above resistance, and TMF is rising above 0.05.
• Sell when: Price breaks below support, and TMF is falling below -0.05.

4. TMF with Moving Averages

Pairing TMF with a moving average (e.g., 50 EMA) helps filter trade signals:

• Buy when: TMF is rising, and price is above the 50 EMA.
• Sell when: TMF is falling, and price is below the 50 EMA.

Pros and Cons of Using Twiggs Money Flow

✅ Pros:

• Improves on Chaikin Money Flow by reducing noise.
• Helps traders confirm trend strength using volume participation.
• Useful for identifying accumulation and distribution phases.

❌ Cons:

• Can generate false signals in low-volume markets.
• Requires additional confirmation indicators for best results.

Final Thoughts

The Twiggs Money Flow (TMF) is a powerful volume-based indicator that helps traders confirm trends, detect reversals, and validate breakout trades. When combined with moving averages or support/resistance levels, TMF enhances trade accuracy and decision-making.