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Money Flow Index

The Money Flow Index (MFI) is a technical indicator that uses both price and volume data to identify overbought or oversold signals. Unlike indicators like RSI that use only price, MFI incorporates volume to provide a more accurate reading. MFI values range from 0 to 100, with readings above 80 considered overbought and below 20 considered oversold. Divergences between MFI and price can also signal potential trend reversals.

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Ali Abdelfatah Mahmoud
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171 views2 pages

Money Flow Index

The Money Flow Index (MFI) is a technical indicator that uses both price and volume data to identify overbought or oversold signals. Unlike indicators like RSI that use only price, MFI incorporates volume to provide a more accurate reading. MFI values range from 0 to 100, with readings above 80 considered overbought and below 20 considered oversold. Divergences between MFI and price can also signal potential trend reversals.

Uploaded by

Ali Abdelfatah Mahmoud
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Money Flow Index - MFI Definition and

Uses
What Is the Money Flow Index (MFI)?
The Money Flow Index (MFI) is a technical oscillator that uses price and volume data for
identifying overbought or oversold signals in an asset. It can also be used to spot divergences which warn of
a trend change in price. The oscillator moves between 0 and 100.

Unlike conventional oscillators such as the Relative Strength Index (RSI), the Money Flow Index
incorporates both price and volume data, as opposed to just price. For this reason, some analysts call MFI
the volume-weighted RSI.

KEY TAKEAWAYS
 The Money Flow Index (MFI) is a technical indicator that generates overbought or oversold signals
using both prices and volume data.
 An MFI reading above 80 is considered overbought and an MFI reading below 20 is considered
oversold, although levels of 90 and 10 are also used as thresholds.
 A divergence between the indicator and price is noteworthy. For example, if the indicator is rising
while the price is falling or flat, the price could start rising.

What Does the Money Flow Index Tell You?


One of the primary ways to use the Money Flow Index is when there is a divergence. A divergence is when
the oscillator is moving in the opposite direction of price. This is a signal of a potential reversal in the
prevailing price trend.

For example, a very high Money Flow Index that begins to fall below a reading of 80 while the underlying
security continues to climb is a price reversal signal to the downside. Conversely, a very low MFI reading
that climbs above a reading of 20 while the underlying security continues to sell off is a price reversal signal
to the upside.

Traders also watch for larger divergences using multiple waves in the price and MFI. For example, a stock
peaks at $10, pulls back to $8, and then rallies to $12. The price has made two successive highs, at $10 and
$12. If MFI makes a lower higher when the price reaches $12, the indicator is not confirming the new high.
This could foreshadow a decline in price.

The overbought and oversold levels are also used to signal possible trading opportunities. Moves below 10
and above 90 are rare. Traders watch for the MFI to move back above 10 to signal a long trade, and to drop
below 90 to signal a short trade.

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