The Money Flow Index (MFI)

The Money Flow Index (MFI) is a technical analysis indicator that measures the flow of money into and out of a security over a specified period. It's based on the premise that volume precedes price movement. Calculation of MFI 1. Typical Price: Calculate the typical price for each period, which is the average of the high, low, and close prices. 2. Raw Money Flow: Calculate the raw money flow for each period, which is the product of the typical price and the volume. 3. Positive and Negative Money Flow: Calculate the positive and negative money flow for each period, depending on whether the typical price is higher or lower than the previous period's typical price. 4. Money Flow Ratio: Calculate the money flow ratio, which is the ratio of the positive money flow to the negative money flow. 5. MFI: Calculate the MFI, which is a 14-period RSI (Relative Strength Index) of the money flow ratio. Interpretation of MFI 1. Overbought and Oversold Conditions: MFI values above 80 indicate overbought conditions, while values below 20 indicate oversold conditions. 2. Bullish and Bearish Divergences: Bullish divergences occur when the MFI makes a higher low while the price makes a lower low. Bearish divergences occur when the MFI makes a lower high while the price makes a higher high. 3. Money Flow Confirmation: The MFI can be used to confirm price movements. If the price is rising and the MFI is above 50, it confirms the uptrend.