Developed by Dr. Bill Williams, the Market Facilitation Index synthesizes both price and volume data in an effort to improve trading accuracy.
The calculation for the MFI is: [High] - [Low] / Volume
In his book Trading Chaos, Williams identified four types of trading sessions: Fakes, Fades, Squats, and Greens.
The combination of lowered volume with a rising MFI is known as a "Fake." As there is no real foundation for change behind a stock except for market activity on the floor, the price eventually reverses itself.
A "Fade" is when volume is down and the MFI is also down. In essence, the market is bored and interest in the stock fades. Expect the price to move in the opposite direction.
When volume is up while the MFI is down, the condition is referred to as a "Squat." Think of the stock crouching down like a sprinter before a race. Movement after the squat gives a clue to future to direction.
When volume and the MFI are both up, the situation is "Green." This is a strong signal to follow the trendline.