Money Flow Index (MFI)

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Money Flow Index (MFI)

The Money Flow Index (MFI) is a momentum oscillator that measures the flow of money into and out of an asset by combining price and trading volume. Scaled from 0 to 100, the MFI helps traders detect potential reversals and confirm trend strength by weighting price moves with the volume behind them.

Key takeaways

  • MFI combines price and volume to assess buying and selling pressure—giving a fuller picture than price-only indicators.
  • Readings above 80 commonly indicate overbought conditions; readings below 20 commonly indicate oversold conditions. More extreme thresholds (90 / 10) signal exceptional conditions.
  • Divergence between price and MFI (price making new highs while MFI does not, or price making new lows while MFI rises) can foreshadow reversals.
  • Use MFI with trend context: in uptrends look for MFI dips toward ~40 as potential entries; in downtrends watch rallies toward ~60 as potential shorting opportunities.

How MFI is calculated

Default calculation uses a 14-period window.

  1. Typical Price = (High + Low + Close) / 3
  2. Raw Money Flow = Typical Price × Volume
  3. Determine positive or negative money flow:
  4. If Typical Price > previous Typical Price → Raw Money Flow is positive
  5. If Typical Price < previous Typical Price → Raw Money Flow is negative
  6. If equal → neither
  7. Sum positive and negative raw money flows over the 14 periods.
  8. Money Flow Ratio = (14-period Positive Money Flow) / (14-period Negative Money Flow)
  9. MFI = 100 − (100 / (1 + Money Flow Ratio))

The indicator is updated each period using the most recent 14-period sums.

Interpreting MFI signals

  • Overbought / oversold thresholds:

  • 80 — commonly considered overbought (potential for pullback)

  • <20 — commonly considered oversold (potential for rebound)

  • 90 / <10 — stronger, rarer extremes that often warrant contrarian attention

  • Divergence:
  • Bearish divergence: price makes higher highs while MFI fails to make higher highs → possible upcoming decline.
  • Bullish divergence: price makes lower lows while MFI makes higher lows → possible upcoming rally.
  • Trend-based use:
  • In confirmed uptrends, shallow MFI dips (~40) can be used as entries.
  • In confirmed downtrends, rallies that push MFI to ~60 can be used for short entries or exits.
  • Timing: because MFI includes volume (which can lead price), it may signal reversals earlier than price-only oscillators.

MFI vs. RSI

  • RSI (Relative Strength Index) measures price momentum only.
  • MFI adds volume as a weighting factor, so it gauges the force behind price moves.
  • In many cases they move similarly; but when volume confirms or contradicts price, MFI can offer earlier or clearer signals than RSI.

Limitations and risk management

  • Like all indicators, MFI can produce false signals—especially during strong trends where overbought/oversold conditions can persist.
  • Relying solely on MFI for entries/exits is risky. Combine it with trend analysis, support/resistance, price action, or other indicators.
  • Always use position sizing and stop-loss rules appropriate to your risk tolerance.

Practical tips

  • Default the period to 14, but test other periods to match your trading timeframe and asset liquidity.
  • Watch divergence alongside volume patterns and price structure for higher-confidence signals.
  • Use extreme thresholds (90/10) for contrarian trades and 80/20 for early warnings.

Conclusion

The Money Flow Index is a useful oscillator that strengthens price analysis by incorporating volume. It highlights when price moves are backed by real buying or selling pressure and can give advance warning of reversals via divergence and extreme readings. Use MFI as part of a broader trading plan, not as a stand-alone decision tool.