Money Flow Index (MFI)
The MF (Money Flow Index) compares the value traded on up-days to value traded on down-days and anticipates trend weakness and any points of reverse shift. It is a volume-weighted variant of the Relative Strength Index.
1) Measure Money Flow for every time period:
Typical Price * Volume
2) Measure Typical Price for every time period:
(High + Low + Close) / 3
Make decision on the time period over which to measure the index which should be based on the cycle that you are trading.
3) Measure Negative Money Flow: Add Money Flow for every period (in the time period) that Typical Price shifts down.
4) Measure Positive Money Flow: Add Money Flow for every period (in the time period) that Typical Price shifts up.
5) Measure the Money Flow Index: 100 - 100 / (1+ Money Ratio)
6) Measure the Money Ratio: Negative Money Flow / Positive Money Flow
That is why Money Flow Index (MFI) is an indicator, which depicts the intensity the money, is invested in a commodity or withdrawn from it. Forming and interpreting this indicator resemble those of RSI; the distinction is that the MFI also refers to volume.
It's important to remember while analyzing the MFI:
- Discrepancies between indicator and price shift
- If prices grow and MFI decreases, the chance of price turning is very high
- MFI values over 80 and below 20 means respectively about the market foundation or potential high