Money Flow

The Money Flow Index (MFI) is a momentum indicator that measures the strength of money flowing in and out of a security. It is related to the Relative Strength Index, but where the RSI only incorporates prices, the Money Flow Index accounts for volume.

The common interpretation of the MFI is similar to the RSI in that readings above 80 imply market tops while readings below 20 imply market bottoms. MFI can also be used to imply reversals, when prices trend higher and the MFI trends lower (or vice versa), a reversal may be imminent.

The Money Flow Index is calculated as follows.

• Typical Price = (High + Low + Close)/3
• Money Flow = Typical Price * Volume
• Money Ratio = (Positive Money Flow)/(Negative Money Flow) Positive Money Flow is the sum of the Positive Money over the specified number of periods. (If today's Typical Price is greater than yesterday's Typical Price, it is considered Positive Money Flow.) Negative Money Flow is the sum of the Negative Money over the specified number of periods. (If today's price is less than yesterday's Typical Price, it is considered Negative Money Flow.)
• Money Flow Index (MFI) = 100 - (100/(1 + Money Ratio))