Money Flow Index (MFI) is a momentum indicator that incorporates both price and volume to measure buying and selling pressure. Often called “volume-weighted RSI,” MFI oscillates between 0 and 100. Readings above 80 indicate overbought conditions; below 20 indicates oversold. By including volume, MFI provides more insight into the strength of money flowing into or out of an asset.
- Volume-weighted version of RSI (0-100 scale)
- Above 80 = overbought; Below 20 = oversold
- Incorporates both price and volume
How MFI Works
MFI combines price and volume:
MFI Calculation:
Step 1: Typical Price (TP)
TP = (High + Low + Close) / 3
Step 2: Raw Money Flow
Raw MF = TP × Volume
Step 3: Money Flow Direction
If today's TP > yesterday's TP: Positive Money Flow
If today's TP < yesterday's TP: Negative Money Flow
Step 4: Money Flow Ratio (14 periods)
MFR = Sum of Positive MF / Sum of Negative MF
Step 5: MFI
MFI = 100 - (100 / (1 + MFR))
Like RSI but volume-weighted!
Quick Reference: MFI Levels
| MFI Level | Condition | Trading Signal |
|---|---|---|
| Above 80 | Overbought | Watch for reversal down |
| 60-80 | Bullish | Upward pressure |
| 40-60 | Neutral | No clear direction |
| 20-40 | Bearish | Downward pressure |
| Below 20 | Oversold | Watch for reversal up |
Example: Trading MFI
MFI Oversold Bounce:
| Day | Price | MFI | Volume | Signal |
|---|---|---|---|---|
| 1 | $100 | 55 | Normal | Neutral |
| 5 | $92 | 35 | High | Selling |
| 10 | $85 | 18 | Very high | Oversold, BUY watch |
| 12 | $88 | 25 | Normal | MFI rising, BUY |
| 20 | $98 | 60 | Normal | Recovery |
Money Flow Index is a volume-weighted RSI measuring buying and selling pressure. Above 80 is overbought; below 20 is oversold. MFI includes volume, making it more reliable than RSI alone. Watch for divergences between MFI and price for reversal signals.
MFI Trading Strategies
Overbought/Oversold
Buy when MFI rises above 20 from oversold. Sell when MFI falls below 80 from overbought.
Divergence
- Bullish: Price makes lower low, MFI makes higher low
- Bearish: Price makes higher high, MFI makes lower high
Failure Swings
MFI fails to reach prior extreme on second attempt = reversal signal.
With Trend
In uptrends, use oversold MFI for buy entries. In downtrends, use overbought MFI for sell entries.
MFI vs RSI
| Feature | MFI | RSI |
|---|---|---|
| Input | Price + Volume | Price only |
| Range | 0-100 | 0-100 |
| Overbought | Above 80 | Above 70 |
| Oversold | Below 20 | Below 30 |
| Volume insight | Yes | No |
Interpreting MFI Readings
MFI Above 80
Heavy buying on high volume. Price may be exhausted. Watch for reversal.
MFI Below 20
Heavy selling on high volume. Capitulation may be occurring. Watch for bounce.
MFI Divergence
Most reliable signal. Volume-weighted divergence is stronger than price-only divergence.
Common Mistakes
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Ignoring the volume component – MFI’s value is volume-weighting. Use it!
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Selling at 80 in uptrends – Strong trends stay overbought. Don’t fight the trend.
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No confirmation – Wait for MFI to EXIT extreme zone, not just enter.
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Missing divergences – Divergences are MFI’s most powerful signal.
How JournalPlus Tracks MFI
JournalPlus logs MFI readings at entry, helping you analyze whether volume-weighted overbought/oversold signals improve your timing.
