Twiggs Money Flow
Twiggs Money Flow is my own derivation, based on the popular Chaikin Money Flow indicator, which is in turn derived from the Accumulation Distribution line. We are all indebted to Marc Chaikin and Larry Williams for the contribution they have made to the field of technical analysis and pricevolume oscillators.
Twiggs Money Flow warns of breakouts and provides useful trend confirmation. It is based on the observation that buying support is normally signaled by:
 increased volume and
 frequent closes in the top half of the daily range.
Likewise, selling pressure is evidenced by:
 increased volume and
 frequent closes in the lower half of the daily range.
After using Chaikin Money Flow intensively for several months, I noticed that the indicator has two weaknesses:
 If price gaps up or down and then closes midway between the day's high and low, the indicator records no change. It does not account for gaps.
 CMF also has a tendency to "bark twice". The formula sums Accumulation Distribution for 21 periods and then divides the total by the sum of volume for the identical period. This is very effective in highlighting short to mediumterm accumulation and distribution but leaves the user with the same failing as a simple moving average: unusually high or low data affects the indicator on the day it is added to the indicator period and on the day it is dropped from the calculation. This is far more critical with the money flow indicator than with a moving average and users may witness a surge in the index that is totally unrelated to current price/volume behavior.
Example
Mayne Nickless (Australia) is plotted with Chaikin Money Flow and Volume.
Mouse over chart captions to display trading signals.
 Chaikin Money Flow drops sharply at [1] as the stock gaps downward on exceptionally high volume, indicating distribution.
 22 days later at [2], Chaikin Money Flow jumps upwards when the data on day [1] is dropped from the indicator window. There is no unusual volume or price event on day [2].
 Price gaps up with strong volume but Chaikin Money Flow dips  because the close is below the midpoint between the day's high and low. The gap up is ignored.
Two Basic Improvements
Twiggs Money Flow makes two basic improvements to the Chaikin Money Flow formula:
 To solve the problem with gaps, Twiggs Money Flow uses true range, rather than daily Highs minus Lows.
 And, rather than a simplemovingaveragetype formula, Twiggs Money Flow applies exponential smoothing, using the method employed by Welles Wilder for many of his indicators.
Example
Mayne Nickless (Australia) is plotted with Twiggs Money Flow and Chaikin Money Flow.
Mouse over chart captions to display trading signals.
 The stock gaps downward at [1] on exceptionally high volume. Twiggs Money Flow and Chaikin Money Flow drop sharply, indicating distribution.
 There is no unusual volume or event 22 days later at [2], reflected by the smooth indicator line on Twiggs Money Flow. By contrast, Chaikin Money Flow jumps up sharply at [2] when day [1] data is dropped from the indicator calculation.
 Price gaps up on day [3] with aboveaverage volume. Twiggs Money Flow rises because of the upward gap while Chaikin MF dips (because the Close is below the midpoint between the day's High and Low).
Trading Signals
Twiggs Money Flow signals accumulation if above zero, while negative values signal distribution. The higher the reading (above or below zero), the stronger the signal.
 Go long if a breakout above resistance is supported by Twiggs Money Flow above zero.
 Go short if a breakout below support is confirmed by negative Twiggs Money Flow.
Divergences also provide good signals:
 Go long on a bullish divergence.
 Go short on a bearish divergence.
The strongest confirmation of the above signals is when either:
 Twiggs Money Flow is trending upwards and completes a trough without crossing below zero, or
 Twiggs Money Flow trends downwards and completes a peak without crossing above zero.
In other words: when Twiggs Money Flow respects the zero line.
Example
Flight Centre (Australia) with 150day and 21day Exponential Moving Averages and Twiggs Money Flow.
Mouse over chart captions to display trading signals.
 Go long at [1] on bullish divergence.
 Twiggs Money Flow has respected the zero line, forming a trough above zero; strong confirmation of the earlier bullish divergence.
 Go long at [3] on breakout above the resistance level (new 6month high). Twiggs Money Flow has barely crossed below zero in the 10 months prior to the breakout  an exceptionally strong accumulation signal.
Volume Spikes
Beware of large volume spikes  on Twiggs MF or Chaikin MF. A gentle slope back towards zero is not a divergence but is caused by the exponential smoothing: the indicator will tend towards zero, over time, in the absence of other factors. Where there is any doubt about a divergence, check with a longerterm Twiggs MF indicator.
Example
Pan Pharmaceuticals with 21day Twiggs Money Flow and 100day Twiggs Money Flow.
Mouse over chart captions to display trading signals.
 A large volume spike (more than 40 times average daily volume), while PPH is trending lower, causes Twiggs Money Flow to drop sharply.
 The gradual upward slope on the 21day Twiggs MF over the next three months is not a bullish divergence but the result of exponential smoothing: the indicator tends towards zero, over time, in the absence of other factors. This is best illustrated by the longerterm 100day Twiggs Money Flow which remains almost completely flat over the same period.
Setup
See Indicator Panel for directions on how to set up Twiggs Money Flow. The default setting is:
 21 days
To alter the default settings  Edit Indicator Settings.
True Range
True Range is the greater of:
 High for the period less the Low for the period.
 High for the period less the Close for the previous period.
 Close for the previous period and the Low for the current period.
Basically, True Range High (TRH) is the greater of today's High and yesterday's Close.
True Range Low (TRL) is the lesser of today's Low and yesterday's Close.
Twiggs Money Flow Formula
Twiggs Money Flow substitutes true range for the daily high and low and then applies exponential smoothing, separately, to the sum of AD and the divisor:
 Calculate True Range High and True Range Low:
True Range High (TRH) is the greater of:
 High [today] and
 Closing price [yesterday]
True Range Low (TRL) is the lesser of:
 Low [today] and
 Closing price [yesterday]

Calculate AD using True Range High and True Range Low:
AD = {(Close  TRL)  (TRH  Close)} / {TRH  TRL} * Volume

Apply exponential smoothing* to AD:
 Calculate AD[21] as the sum of AD for the first 21 days
 On the next day, multiply AD[21] by 20/21 and add AD for day 22
 Repeat this process for each subsequent day**.
*Welles Wilder's IndicatorsTMF uses Welles Wilder's formula for calculating an exponential moving average. Wilder not use the standard exponential moving average formula. See Wilder Moving Average. A 14day Wilder moving average is equivalent to a 27day exponential moving average using the standard formula. 

Do the same with the divisor:
 Calculate V[21] as the sum of volume for the same 21 day period as in 3. above
 On the next day, multiply V[21] by 20/21 and add Volume for day 22
 Repeat this process for each subsequent day**
**Exponential SmoothingSome observant readers have questioned why Step 3 is not divided
by 21 days, to create an
exponential
moving average. The same applies to Step 4. This leads to another question: Why are AD (Step 3) and Volume
(Step 4) not divided by 21? 
 Divide AD[21] by V[21]:
Twiggs Money Flow = AD[21] / V[21] expressed as a percentage.
MetaStock® Formula
Twiggs Money Flow
http://www.incrediblecharts.com/indicators/twiggs_money_flow.php
{20091015}
periods:=Input("TMF periods",1,100,21);
TRH:=Max(Ref(C,1),H);
TRL:=Min(Ref(C,1),L);
TR:=TRHTRL;
ADV:=((CTRL)(TRHC))/If(TR=0,999999,TR)*V;
If(Wilders(V,periods)=0,0,Wilders(ADV,periods)/Wilders(V,periods))
® MetaStock is a registered trademark of Equis International in the United States and other countries.
Legal Notice
Twiggs Money Flow is a proprietary indicator. Readers are permitted to explain/describe Twiggs Money Flow on other websites/publications and/or to include/reproduce the formula in other software provided that they display a hyperlink to this web page.