Ask Colin

Is there any value in using money flow and does it have major flaws?

First, let us be clear about how to calculate money flow for any period (usually a day, but it can be any period):
 

Typical Price = (The high price + The low price + The closing price) ÷ 3

 
Money flow for a day = Typical price x volume for the period

 

Money flow is a proxy for the turnover in a stock. You would use it when the turnover is not available (my broker’s website shows daily turnover and I am sure others would also).

 

The flaw in Money flow is that it is an estimate. It may be quite close to turnover, but if there were a few very large transactions during the day then it could be somewhat inaccurate.

 

In the absence of daily turnover, money flow would be a useful proxy but I would be looking at the course of sales for the day just to check for anomalies.

 

Money flow could also be calculated for any period, intraday or say a week or a month. The longer the period the less reliable it would be because the three prices may not be typical and the distortion of large transactions at other prices applies as well.

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