Money Flow Index (MFI)

The Money Flow Index (MFI) is a momentum indicator calculated based on price and volume weighting, used to assess the strength of money flowing into and out of a financial asset over a specific period. It is essentially a volume-price analysis tool, classified as an oscillator-type technical indicator, with a numerical range of 0 to 100.

Calculation Method:

The calculation of MFI relies on the following steps:

  1. Calculate Typical Price = (High Price + Low Price + Close Price) / 3
  2. Raw Money Flow = Typical Price × Day\’s Volume
  3. Determine Money Flow Direction (Positive Inflow or Negative Outflow):
  • If today\’s Typical Price > yesterday\’s Typical Price, it is counted as positive money flow.
  • If today\’s Typical Price < yesterday\’s Typical Price, it is counted as negative money flow.
  1. Accumulate positive and negative money flows within a set period (e.g., 14 days) and find the Money Flow Ratio:
  • Money Flow Ratio = Sum of Positive Money Flow / Sum of Negative Money Flow
  1. Finally, calculate MFI:
  • MFI = 100 – [100 ÷ (1 + Money Flow Ratio)]

Technical Characteristics and Analytical Value:

  1. Integrates Price and Volume Information: Compared to RSI, MFI considers the volume factor, thus better reflecting capital movement.
  2. Overbought/Oversold Identification:
  • MFI > 80 is generally considered an overbought zone, a potential signal for price pullback.
  • MFI < 20 is generally considered an oversold zone, a potential signal for a rebound.
  • However, this range is not an absolute basis for buying or selling; it needs to be judged in conjunction with other technical or fundamental assistance.
  1. Trend Divergence Judgment:
  • When the price continuously makes new highs (or new lows) while MFI does not follow suit (upward or downward), forming a divergence between price and indicator, it may indicate trend exhaustion or reversal.
  1. Liquidity Verification Tool: In breakout situations, MFI can be used to verify whether price changes are supported by sufficient volume, thereby improving the accuracy of trend judgment.

Application Scope and Limitations:

  • Applicable to highly liquid market targets such as stocks, ETFs, indices, and commodities.
  • Performs better in oscillating or late-stage trend phases; signal sensitivity is limited in the early stages of a trend.
  • Not recommended as a standalone basis for entry/exit; should be used in conjunction with indicators like MACD, Bollinger Bands, ADX, etc.
  • Its accuracy may decrease in situations of distorted volume (e.g., concentrated release in after-hours trading) or drastic price gaps.
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