Money Flow Index
A volume-weighted momentum oscillator that measures buying and selling pressure on a 0–100 scale — often called the volume-weighted RSI.
Description
The Money Flow Index combines price and volume to measure the intensity of buying and selling pressure. Because it incorporates volume, it captures not just whether price moved but how much trading activity supported the move. It is calculated and interpreted much like RSI, leading to its nickname as the “volume-weighted RSI.”
How It Works
Typical Price (TP) = (high + low + close) / 3. Money Flow = TP × volume. If today’s TP is greater than yesterday’s, it is Positive Money Flow; if lower, Negative. Positive Money Flow is summed over N periods (default: 14); same for Negative. Money Ratio = Positive / Negative. MFI = 100 − 100 / (1 + Money Ratio). Result: 0–100.
How to Read It
Above 80 signals overbought conditions or heavy buying pressure. Below 20 signals oversold conditions or heavy selling. The most useful MFI signal is divergence: if price makes a new high but MFI fails to confirm it (lower high), selling pressure is increasing — a bearish warning. The reverse applies at lows. Zero-line analogy: above 50 indicates net positive money flow.
Common Uses
- Confirming RSI signals with volume context
- Divergence detection for high-conviction reversal setups
- Identifying when volume supports or contradicts price moves
- Overbought/oversold identification on volume-rich instruments
Caveats
MFI requires reliable volume data — it becomes unreliable on thinly traded instruments or in markets where volume data is synthetic (e.g., some forex platforms reporting tick volume). It is less meaningful during low-volume sessions. Like RSI, it can remain overbought or oversold for extended periods in strong trends. Not a substitute for RSI — rather, a complement when volume data is trusted.