Money Flow Index

Money Flow Index (MFI)

Money Flow Index (MFI) is a technical indicator that shows the rate at which money is invested into and withdrawn from a security. It is similar to the Relative Strength Index, but volume is also considered in MFI.

Points to consider when analyzing MFI

When analyzing the Money Flow Index, the following points should be taken into consideration:

Divergence between the indicator and price movement. If prices grow while the Money Flow Index falls (or vice versa), there is a great probability of a price turn.
Extreme values. A Money Flow Index value over 80 or under 20 signals a potential market peak or bottom respectively.

MFI combines price and tick volume; the levels 80 and 20 mark possible peaks and bottoms.

Calculation of Money Flow Index

The calculation of the Money Flow Index includes several stages. First, the typical price (TP) of the period is defined:

TP = (HIGH + LOW + CLOSE) / 3

Then the money flow (MF) of the period is calculated:

MF = TP * VOLUME

If today’s typical price is higher than yesterday’s, the money flow is positive; if it is lower, the money flow is negative. Positive money flow (PMF) is the sum of the positive money flows over the selected period, and negative money flow (NMF) is the sum of the negative money flows. The money ratio (MR) and the Money Flow Index are then calculated as:

MR = PMF / NMF
MFI = 100 - (100 / (1 + MR))