Money Flow Index

Notes:

These indicators and concepts are specifically designed for TradingView.com

Overview of MFI

The Money Flow Index (MFI) is a technical indicator used in trading that measures the strength of buying and selling pressure in a market. It is calculated by combining price and volume data and is often used to identify overbought and oversold conditions in the market. The MFI is based on the idea that when prices are rising and trading volume is high, there is likely to be a high level of buying pressure. Conversely, when prices are falling and trading volume is high, there is likely to be a high level of selling pressure. The MFI takes this concept a step further by using a formula to calculate the ratio of positive money flow (PMF) to negative money flow (NMF) over a specified period.

How to trade the Money Flow Index

The MFI is plotted as a line that oscillates between 0 and 100. Values above 80 are typically considered overbought, indicating a potential reversal to the downside. Conversely, values below 20 are typically considered oversold, indicating a potential reversal to the upside. Traders may use the MFI in combination with other indicators and analysis techniques to identify potential trading opportunities. The Money Flow Index (MFI) is a technical analysis indicator that is used to measure the strength of buying and selling pressure in financial markets. The MFI is based on the concept of volume-weighted price momentum, and is similar to the Relative Strength Index (RSI).

How to calculate MFI

To manually calculate the MFI, follow these steps:

1. Determine the typical price for each period, which is the average of the high, low, and closing prices.
2. Determine the raw money flow for each period, which is the typical price multiplied by the volume.
3. Calculate the positive and negative money flow by summing the raw money flow for periods where the typical price is higher or lower than the previous period.
4. Calculate the money flow ratio by dividing the positive money flow by the negative money flow.
5. Calculate the MFI by calculating 100 minus (100 / (1 + money flow ratio)).

The MFI is plotted on a chart as a line that oscillates between 0 and 100. Readings above 80 are considered overbought, and readings below 20 are considered oversold. Traders use the MFI to identify potential buying or selling opportunities, with overbought conditions indicating a potential selling opportunity, and oversold conditions indicating a potential buying opportunity.

The MFI can also be used to confirm or contradict signals from other technical analysis indicators. For example, if the price of an asset is trending upwards but the MFI is trending downwards, it may indicate that the trend is weakening and a potential reversal is imminent.

It's important to note that the MFI is just one of many technical analysis indicators that traders use to analyze financial markets. Traders should always perform a comprehensive analysis of the market before making any trading decisions, and use risk management strategies to mitigate potential losses.