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Money Flow Index

MFI - Money Flow Index

Money flow index is an indicator of the intensity of investing in a security. Interpretation of the indicator is similar to Relative Strength Index with the only difference that volume is taken into consideration when using MFI.

When analyzing the money flow index one needs to take into consideration the following points:

• If prices grow while MFI falls, there is a great probability of a price turn;
• Money Flow Index value, which is over 80 or under 20, signals correspondingly of a potential top or bottom of the market.

Calculation:

The calculation of Money Flow Index includes several stages. At first one defines the typical price (TP) of the period in question:

TP = (HIGH + LOW + CLOSE) / 3

Then the amount of the Money Flow (MF)is calculated:

MF = TP * VOLUME

If today's typical price is larger than yesterday's TP, then the money flow is considered positive. If today's typical price is lower than that of yesterday, the money flow is considered negative.

A positive money flow is a sum of positive money flows for a selected period of time. A negative money flow is the sum of negative money flows for a selected period of time.

Then one calculates the money ratio (MR) by dividing the positive money flow by the negative money flow:

MR = POSITIVE MONEY FLOW / NEGATIVE MONEY FLOW

And finally, one calculates the money flow index using the money ratio:

MFI = 100 - (100 / (1 + MR))

Where:

HIGH - current bar maximum price;
LOW - current bar minimum price;
CLOSE - current bar closing price;
VOLUME - current bar volume.

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Similar information about indicators you can find in information system of trade platform MetaTrader 4 (Help-> Help Topics [F1] -> Ananlitics -> Technical Indicators).