Volume & money flowTwiggs Money Flow · TMF
Colin Twiggs' refinement of Chaikin Money Flow that uses true range and exponential smoothing to cut distortion.
Works in most conditionsEngine-computed on a fixed sample series
What it is
Twiggs Money Flow (TMF) is a volume indicator that tries to answer one question: underneath the price action, is money quietly flowing into this stock or quietly flowing out? It was created by Colin Twiggs of IncredibleCharts as a fix for an older, popular tool called Chaikin Money Flow (CMF). Both belong to the accumulation-distribution family, meaning they judge whether each bar looks like buyers taking control (accumulation) or sellers unloading (distribution). TMF plots as a single line that wanders above and below a zero line, and its whole purpose is to reveal buying or selling pressure that the naked price chart hides. If you are a total beginner, think of it as a pressure gauge: positive means the tank is filling with buyers, negative means it is draining.
How it is calculated
TMF starts by locating each bar's close inside its true range rather than its simple high-to-low range. The true range high is the greater of today's high and yesterday's close, and the true range low is the lesser of today's low and yesterday's close, so the calculation accounts for overnight gaps that CMF ignores. It then computes a money-flow multiplier, roughly (close minus true-range-low, minus true-range-high minus close) divided by the true range, which lands between plus one when the bar closes at its top and minus one when it closes at its bottom. That multiplier is multiplied by the bar's volume to produce money-flow volume. Finally, instead of a plain sum like CMF, TMF applies Wilder-style exponential smoothing (a running average that gives recent bars slightly more weight) to both the money-flow volume and the raw volume over a lookback, usually 21 periods, and divides one smoothed figure by the other. The result oscillates around zero and is naturally bounded, so it never drifts off endlessly the way a cumulative line does.
Reading it, step by step
First, look only at which side of zero the line sits on: above zero says net accumulation is in control, below zero says net distribution. Second, read the slope, because a line rising from minus 0.10 toward zero is improving pressure even while it is still technically negative. Third, and most valuable, hunt for divergence between TMF and price: if price grinds to a fresh high but TMF makes a lower high, the advance is being sold into and lacks the volume to continue. The reverse bullish divergence, price making a lower low while TMF makes a higher low, often marks a bottom where sellers are exhausted. Because Twiggs deliberately smoothed the line more gently than CMF, its swings are steadier and its zero-line crossings tend to be less jumpy, so a crossing that holds for several bars carries more weight than a one-bar poke across the line.
Best timeframes and settings
The default lookback is 21 periods, which suits daily charts and swing-trading horizons where you hold positions for days to weeks. On a daily chart, 21 bars is roughly a trading month of pressure, which smooths out single-session noise while still turning within a reasonable window. Shortening the period toward 13 makes TMF more responsive and better for shorter swings, at the cost of more false zero-line crosses; lengthening it toward 34 or higher makes it slower and better for position trading and for filtering out chop. TMF is not a scalping tool, because on one-minute or five-minute charts the volume signal is too noisy and the smoothing lags too much to time entries. The core trade-off is universal to smoothed indicators: more responsiveness means earlier but less reliable signals, more smoothing means later but cleaner ones.
When and where to use it
TMF shines precisely where CMF struggles, which is on gap-prone instruments such as individual stocks that jump on earnings and on index products that open away from the prior close. Its true-range basis absorbs those gaps so a single overnight jump does not wildly distort the reading. It is most useful as a confirmation layer during basing and breakout phases, when you want to know whether a quiet consolidation is secretly being accumulated before it moves. It works in both trending and ranging markets as a pressure gauge, but it is not directional on its own, so avoid trading it in isolation. Avoid it entirely on thin, illiquid names or synthetic instruments where reported volume is unreliable, because every volume indicator is only as trustworthy as the volume feeding it.
Strategies that use it
The first strategy is accumulation confirmation on a base breakout: wait for a stock to build a sideways base, require TMF to cross and hold above zero as the base matures, then enter long when price clears the base high, placing the stop below the base low and exiting if TMF falls back below zero. The second is divergence reversal: in an extended uptrend, if price prints a higher high while TMF prints a lower high, tighten stops or take partial profits, and consider a counter-trend short only when price then breaks a short-term support with TMF still weak. The third is a trend filter overlay: only take long signals from your primary system when TMF is above zero and only shorts when it is below, using the indicator as a permission gate rather than a trigger. In every case TMF confirms the character of a move; it does not fire the entry by itself.
Combining it with other indicators
TMF pairs naturally with price-structure tools such as horizontal support and resistance or a base pattern, because the indicator tells you the pressure while the structure tells you the level. A moving average of price, say a 50-day, adds trend context so you take TMF accumulation signals only in the direction of the larger trend. Combining it with the Relative Strength Index or MACD gives you momentum plus money flow, and when both agree the signal is far stronger than either alone. Volume Rate of Change or plain volume bars complement TMF by showing raw participation spikes that confirm a breakout the money-flow line is already leaning toward. Avoid stacking it with another accumulation-distribution clone like CMF or the A/D line, because they are measuring nearly the same thing and will only give you false confidence through redundancy.
Where it fails
The extra smoothing that makes TMF clean also makes it lag, so it turns slightly later than CMF at sharp V-shaped reversals, and a trader expecting a precise top or bottom will be a few bars late. In genuinely sideways, low-conviction markets the line hovers near zero and its crossings become meaningless whipsaws. It is blind to why volume appeared, so a forced-selling event or an index rebalance can push it around for reasons that have nothing to do with real accumulation. The classic mistake is treating a zero-line cross as an automatic buy or sell trigger; it is context, not a signal. Another error is trusting it on low-volume stocks where a handful of trades can swing the multiplier dramatically. Guard against these by demanding that TMF confirms a price event rather than leading it, and by ignoring it on instruments without deep, reliable volume.
A worked example
Imagine a stock stuck between 48 and 50 dollars for six weeks, with TMF hovering around minus 0.05, hinting at mild distribution. Take one bar with a high of 50, low of 48, close of 49.50, and a prior close of 48.50: the true-range high is 50, the true-range low is 48, and the multiplier is (2 times 49.50 minus 50 minus 48) divided by 2, which equals 0.50, so half of that bar's volume counts as accumulation. Over the next three weeks more bars close in the upper half of their true range on rising volume, and the smoothed TMF climbs from minus 0.05 through zero to plus 0.15. That rise above zero, occurring while price is still trapped in the base, is the accumulation tell. When price finally breaks 50 on heavy volume, you already had confirmation that money was flowing in before the breakout, so you take the long with a stop back inside the base near 48.