Money Flow Index

The Money Flow Index (or MFI) is an indicator that measures the volume of money flowing into or out of a stock. It is comparable to the RSI, but with the difference that the MFI also incorporates volume.

Calculation Method

Over a given period of time, the indicator is calculated as follows:

1. Typical Price = (close + high + low) / 3
2. Money Flow = Volume * (Typical Price)
   This Money Flow is considered positive if the typical price today is higher than yesterday's typical price.
   This Money Flow is considered negative if the typical price today is lower than yesterday's typical price.
3. Positive Money Flow over the period = Sum of positive Money Flows over the period
4. Negative Money Flow over the period = Sum of negative Money Flows over the period
5. Money Ratio = Positive Money Flow / Negative Money Flow
6. MFI = 100 - 100 / (1 + Money Ratio) to obtain an indicator varying from 0 to 100

Example

Interpretation

Typically, when the MFI is above 80, the asset is overbought. When below 20, the asset is oversold.

One can also look for a divergence between the indicator and the prices to detect an imminent trend reversal.