Technical Analysis Guide
Volume Indicators - Money Flow Index (MFI)
Money Flow Index (MFI) is similar to the Relative Strength Index (RSI). It is calculated as follows:
- Define a "Typical Price" (TP) for the specified period:
TP = ( HIGH + LOW + CLOSE ) / 3
- Calculate "Money Flow" value (MF):
MF = TP x VOLUME
If "Typical Price" is higher than the preceding one then "Money Flow" is positive. If "Typical Price" is lower than the preceding one then "Money Flow" is negative.
- Calculate "Positive Money Flow" and "Negative Money Flow":
"Positive Money Flow" is the total value of all positive money flows for the specified time period.
"Negative Money Flow" is the total value of all negative money flows for the specified time period.
- "Money Ratio" (MR) is calculated as follows:
MR = POSITIVE MONEY FLOW / NEGATIVE MONEY FLOW
- Then using "Money Ratio" calculate "Money Flow Index":
MFI = 100 - ( 100 / ( 1 + MR ) )
Where:
- HIGH - current bar top;
- LOW - current bar bottom;
- CLOSE - current bar close price;
- VOLUME - current bar volume.
Overbought territory: 80-100; oversold territory: 0-20.
Use the "Insert -> Indicators -> Volume -> Money Flow Index" menu sequence to add Money Flow Index (MFI) indicator in MetaTrader 4.
Money Flow Index (MFI) signals:
- if a new price high is confirmed by a new indicator high it means that the bullish trend is strong;
- if a new price bottom is confirmed by an indicator bottom it means that the bearish trend is strong;
- bullish divergence warns of the weakness of the uptrend:
- bearish convergence warns of the weakness of the downtrend.
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