Money Flow Index [MFI]

#volume #momentum #oscillator #overboughtoversold 

Inventor: Gene Quong and Avrum Soudack 

RSI with volume added, often called the volume-weighted RSI. It measures money flowing in and out: each bar’s typical price (High+Low+Close)/3 times volume counts as positive money on up bars and negative on down bars. Moves between 0 and 100. 

Default period: 14 

Rising MFI indicates money flowing in. Falling MFI indicates money flowing out. 

Useful readings: 

MFI above 80: Overbought, heavy money already in, pullback risk 

MFI below 20: Oversold, selling pressure stretched, bounce likely 

MFI holds above 40 during dips: Uptrend backed by money flow, healthy 

Price makes new high but MFI does not: Bearish divergence with volume proof, stronger than RSI divergence 

Price makes new low but MFI does not: Bullish divergence with volume proof 

MFI and RSI disagree: Volume is telling a different story than price, trust volume 

Objective rules: 

Bullish: MFI crosses above 60. 

Bearish: MFI crosses below 40. 

Oversold buy: MFI crosses back above 20 from below (only when price is above 200 SMA) 

Overbought sell: MFI crosses back below 80 from above (only when price is below 200 SMA) 

Divergence rule: Price at new high but MFI below its last peak for 2+ swings, tighten stops on longs 

What makes it unique: 

It is RSI with a lie detector: every reading is backed by actual traded volume. Its divergences therefore carry evidence, not just price opinion. 

Click here to learn more about the MFI indicator. A seesaw example is used to explain the MFI indicator in the Shelf.

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder on RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

The indicator is applicable to all types of charting. It is calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin-Ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.