How to use Market Cipher B

Market Cipher B (MC-B) is an all-in-one oscillator that combines different algorithms for the best trading analysis. When all of the algorithms converge, MC-B will render a “green dot” or a “red dot” indicating Buy and Sell signals.
fig. A – Simmetry between dots and Buy/Sell signals.
The “green dot” indicates an optimal entry point for a long position (Buy). On the other hand, the “red dot” indicates that is time to Sell. Even though the MC-B indicator could feel a bit complicated to handle we are now going to break down the 3 things that we are going to look at before making any trade.
TAKE HOME MESSAGE: when a BUY green signal appears below the price AND a “green dot” appears on the Market Cipher B may be a good moment to open a long position (Buy).

THE FLOW OF MONEY – Green & Red waves

The first thing to look at in MC-B is the money flow oscillator. This oscillator gives a great visual of market conditions. The green wave indicates that money is going into the market and the strategy is to buy dips. That’s why if money is going into the market the price should go up overall. On the opposite when the wave is red money is going out of the market and is time to Sell because the price is going to the overall decrease.
fig. B – Red and Green waves indicate money flow.
FOLLOW THE MONEY. When looking at the Green/Red waves you can easily see how much money is going into or out of the market and find the flow “direction” of the money. The price will likely follow the money too.
fig. C – The “direction” of the money flow: the green arrow indicates the money going into the market, the red arrow indicates the money going out of the market and the white arrow shows the symmetry between the “red dot” and the Sell signal in correspondence of the money flow/price peak.
If a Red wave is slowly getting smaller and fading into the ZERO line (the horizontal line that splits the MC-B into 2 parts) the inversion of the price could be imminent and could be a nice moment for opening a long position (Buy). We want to open a Buy (long) trade when the Red wave is clearly going to become a Green wave. If you can’t see a clear direction in the money flow wave you should consider waiting before doing a trade.
TAKE HOME MESSAGE: As traders, we want to Buy when the price is in the red wave and Sell in the green.

THE MOMENTUM – Blue waves

The second thing that we want to look at is momentum. The momentum is represented by the blue waves and what we want to look for is a sequence of waves getting smaller and smaller (see fig. D). Smaller waves indicate a possible price change of direction.
fig. D – Momentum is decreasing and therefore a price inversion could be imminent.
When looking at the momentum blue waves we want for these waves to reduce in size in a direction in order to predict a possible change in price inversion (see fig. E).
fig. E – Momentum is decreasing in a precise direction as the cash flow (green curve) is going out of the market, triggering a SELL signal (red dot above the last and smaller curve).
TAKE HOME MESSAGE: We want to look for a CLEAR decreasing direction in momentum.

Stochastic RSI – The strategy fine tuner

The StochRSI is the final confirmation that we want to look at before opening a trade. In fact, when used in combination with the other oscillators, the StochRSI can provide important information showing overbought and oversold readings.
fig. F – StochRSI is an oscillator moving between 0 and 100 scale (pink rectangle). Above 80 is overbought, and below 20 is oversold.
When the market is in an oversold condition, (close to the ZERO line), we are looking to Buy because if something is oversold it will eventually come back. On the opposite, if something is overbought (close to the 100), we are looking to Sell.
Keep in mind that overbought doesn’t necessarily mean the price will reverse lower, just like oversold doesn’t mean the price will reverse higher. Rather the overbought and oversold conditions simply alert traders that the RSI is near the extremes of its recent readings.
TAKE HOME MESSAGE: When money flow, momentum, and stochRSI converge in the same indication (Buy/Sell) might be a good time to open a trade.

Conclusions

When the Market Cipher B will render a “green dot” (Buy) or a “red dot” (Sell) is because various algorithms converge. In this article, we have seen the most relevant: money flow, momentum, and stochRSI. The MC-B is a useful tool for understanding how the market is moving but remember that no indicator is always right. You must decide for yourself the strategy to follow according to your goals. MC-B can help to achieve them.

Market Cipher

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