What is the Money Flow Index (MFI) Indicator?
The Money Flow Index (MFI) is a volume-weighted momentum oscillator that measures buying versus selling pressure on a 0–100 scale. It plots in a separate panel below price, using both price movement and volume to show whether participation is flowing into an advance (accumulation) or into a decline (distribution). Traders typically treat readings above 80 as overbought and below 20 as oversold, with the 50 level as a rough bull/bear pressure line.
How is the Money Flow Index (MFI) Indicator Calculated?
The Money Flow Index is calculated from typical price and volume, then converted to a 0–100 oscillator using a money flow ratio over a lookback period (default 14). Typical Price (TP) = (High + Low + Close) / 3, Raw Money Flow (RMF) = TP × Volume, then each bar is labeled positive if TP > prior TP and negative if TP < prior TP; sum positive and negative RMF over 14 periods to get MFR = (Sum Positive RMF) / (Sum Negative RMF), and compute MFI = 100 − [100 / (1 + MFR)].
How to Use the Money Flow Index (MFI) Indicator in Trading?
To use the Money Flow Index in trading, treat it as a pressure and participation filter, then let price structure trigger entries and define risk. Common reads include:
- Overbought/oversold reversals: MFI above 80 flags extended buying pressure; MFI below 20 flags extended selling pressure—look for price rejection at resistance/support before acting.
- 50-level momentum filter: sustained MFI above 50 supports long momentum; sustained MFI below 50 supports short momentum.
- Divergence vs. price: price makes a higher high while MFI makes a lower high (bearish divergence) shows weakening volume-backed demand; price makes a lower low while MFI makes a higher low (bullish divergence) shows fading supply.
- Stops and invalidation: place stops beyond the swing high/low or the support/resistance level that would prove the thesis wrong, not at an MFI number.