Money Flow Index

The Money Flow Index (MFI) also known as volume-weighted RSI, is developed by Gene Quong and Avrum Soudack. Based on price and volume values it defines buying and selling pressure.


MFI first calculates the typical price for each period: if the typical price increases, the money flow is positive (indicating the buying pressure); if the typical price decreases, the money flow is negative (indicating the selling pressure). A ratio of positive and negative money flow is then used in the RSI formula. The resulting oscillator line fluctuates between zero and one hundred levels providing signals of trend reversals and indicating price extremes.


Indicator Formula:
Typical Price = (High + Low + Close) / 3
Money Flow = Typical price * Volume
Money Ratio = Positive Money Flow/Negative Money Flow
Money Flow Index = 100 - (100/ (1 + Money Ratio))


NOTE: Positive Money Flow parameter used in Money Ratio formula, is calculated as a sum of positive money values (received when typical price is greater than the previous typical price value) for the number of periods used to create the indicator. Negative Money Flow is calculated as a sum of negative money values.


Methods of use:

1.Go long on bullish divergence.
2.Go short on bearish divergence.