Technicals Stability Returns

Related Tutorial On Technical Analysis
Overbought Over Sold Basics Relative Strength Indicator (RSI) Stochastic
Williams %R Money Flow Index (MFI) Rate Of Change(ROC)

Money Flow Index Explained with Trading Strategy & Examples

Throughout our site in both tutorial and screener, if we have given maximum emphasis on a parameter after price then it is volume. Other indicators give leads but it is volume which gives stamp of approval to signal. Because of this reason various volume based indicators emerged and some of the prominent ones are Chaikin Money Flow(CMF), On Balance Volume(OBV), ADL and Money Flow Index(MFI).

Money Flow Index was developed to gauge buying and selling pressure. It is yet again a momentum oscillator that takes with price and volume in consideration. It being a oscillator with values between 0 & 100, it is easy to interpret.Its way of calculation is similar to RSI with exception of volume included in MFI, therefore its signal and interpretation is also similar to RSI. It is also called Volume Weighted RSI. So what does it measure, it measure how much money is coming into the market (accumulation) and at what rate. MFI is normally represented as a small chart below price chart as

Formula For Money Flow Index Indicator
Typical Price: (High + Low + Close) / 3

  1. Money Flow: Typical Price x Volume

  2. Positive Money Flow: The Money Flow on days where the Typical Price is greater than the previous day's Typical Price.

  3. Negative Money Flow: The Money Flow on days where the Typical Price is less than the previous day's Typical Price.

  4. Money Ratio: Positive Money Flow / Negative Money Flow

  5. Money Flow Index: 100 - [100 / (1 + Money Ratio)]

MFI Values and their Interpretation

Scenario MFI Value Condition Interpretation
Case 1 80-100 Overbought
  • Potential Top
  • Reversal in cards
  • Initiate short
  • Avoid short if momentum is too strong
Case 2 Falling from 80 to lower level Trend reversal
  • Trend reversal
  • Short position
  • Strong bearish
Case 3 Rising above 50 Bulls have Control
  • Long position
  • Mildly bullish
Case 4 Falling below 50 Bears gain control
  • Short position
  • Mildly Bearish
Case 5 0-20 Oversold
  • Potential Bottom
  • Reversal in cards
  • Initiate Long position
  • Avoid Long if momentum is strong
Case 6 Bullish Divergence Buy signal
  • Trend reversal
  • Bullish signal
Case 7 Bearish Divergence Sell signal
  • Trend reversal
  • Bearish signal

Other important things to know while considering MFI:

Our website also provides free Stock screening based on Different Bearish Candlestick Pattern. It can be found at below link:
Related Technical Stock Screener
Money Flow Index (MFI) MFI Overbought MFI Overbought Falling MFI cross Below Central Line
MFI Overbought Waiting MFI Oversold MFI Oversold Rising MFI cross Above Central Line
MFI Oversold Waiting

Go to the Top