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:

• It is best used when integrated with some other chart pattern or indicators.
• It is leading indicator.
• Some use 70/30 as over bought and over sold.
• For those who rely purely on MFI numbers, they should use 90 and 10 for volatile stocks to get better result.
• Adjust range, 80/20 or number of days (14) to suit the stock.

Our website also provides free Stock screening based on Different Bearish Candlestick Pattern. It can be found at below link:

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