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.
  

Calculate the Money Flow Ratio:

Calculate the MFI:

Trading Based on the MFI Indicator