Money Flow Index Definition
Money Flow Index (MFI) is a technical indicator developed to estimate money inflow intensity into a certain asset by comparing price increases and decreases over a given period, but also taking into consideration trading volumes.
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How to Use Money Flow Index
The indicator can be used to identify whether an asset is overbought or oversold, as well as to determine possible turning points.
Analyzing extreme (overbought/oversold) areas:
- If MFI climbs above 80, the asset is generally considered to be overbought. A sell signal appears if MFI crosses the overbought area boundary from above;
- If MFI drops below 20, the asset is generally considered to be oversold. A buy signal appears if MFI crosses the oversold area boundary from below.
Divergence patterns analysis:
- Rising MFI along with decreasing prices indicates the downtrend may be weakening;
- Falling MFI along with rising prices indicates the uptrend may be weakening.
Money Flow Index (MFI) Indicator
Money Flow Index Formula (Calculation)
The following steps are required to calculate the index:
1. TP = (H + L + C) / 3; 2. MF = TP*Vol; 3. MR = Sum(MF+) / Sum(MF-); 4. MFI = 100 – (100 / (1 + MR)), where: TP – typical price; H – current high; L – current low; C – close price; MF – money flow (positive (MF+) if current TP > previous TP, negative (MF-) otherwise);Vol – volume; MR – money ratio.
How to use in trading platform
Use indicators after downloading one of the trading platforms, offered by IFC Markets.
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