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 indicator bottom is means that the bearish trend is strong;
• bullish divergence warns of the weakness of the uptrend:
  

  Money Flow Index

• bearish convergence warns of the weakness of the downtrend.

Warning: This document does not constitute an offer or a recommendation to enter into any transaction. All views and statements expressed are believed to be true and accurate when published. Any person relying on this information to trade does so entirely at his/her own risk. The markets can be very volatile. Prices may move rapidly against you, and past performance is not necessarily a guide to future performance.