Knowledge of current economic events is a fundamental element of effective trading. In the case of currency pairs and indices, the ability to use the calendar is already satisfactory. Nevertheless, to assess market sentiment, it is worth following current events. In the case of instruments such as shares, tracking information from companies is a necessity.
MFI (Money Flow Index) Indicator
Type of Indicator
The Money Flow Index (MFI) is a technical analysis oscillator that combines price and volume data to determine the strength of money flowing into and out of an asset. MFI is often referred to as the "volume-weighted RSI" because it functions similarly to the Relative Strength Index (RSI), but incorporates volume, making it a volume-weighted measure of market momentum.
Purpose
The primary purpose of the MFI is to measure the flow of money over a specified period and identify potential reversal points in the asset's price. MFI can be used to:
Identify overbought and oversold conditions,
Detect divergences between the indicator and the price,
Confirm the direction of a trend.
Calculation Method
Calculating the MFI involves several steps:
Calculate the Typical Price (TP):
where:
HH is the high price,
LL is the low price,
CC is the closing price.
Calculate the Raw Money Flow:
Determine Positive and Negative Money Flow:
If the current TP is greater than the previous TP, the money flow is positive.
If the current TP is less than the previous TP, the money flow is negative.
