Money Flow Index - MFI

DEFINITION of 'Money Flow Index - MFI'

A momentum indicator that uses a stock’s price and volume to predict the reliability of the current trend. Because the Money Flow Index adds trading volume to the Relative Strength Index (RSI), it’s sometimes referred to as volume-weighted RSI.

BREAKING DOWN 'Money Flow Index - MFI'

Arriving at the index figure requires several steps. The developers of the Money Flow Index, Gene Quong and Avrum Soudack, suggested using a 14-day period for calculations.

1. Determine the Typical Price as follows: (High + Low + Close) / 3

2. Calculate the Raw Money Flow: Typical Price x Volume

3. Identify the Money Flow Ratio: (14-period Positive Money Flow) / (14-period Negative Money Flow)

(Note: Positive money values are created when the typical price is greater than the previous typical price value. The sum of positive money over the number of periods – usually 14 days – is the positive money flow. The opposite is true for the negative money flow values.)

4. Finally, arrive at the Money Flow Index. This is: 100 – [100/(1 + Money Flow Ratio)]

Many traders watch for opportunities that arise when the MFI moves in the opposite direction as the price. This divergence can often be a leading indicator of a change in the current trend.

Money Flow Index (MFI)

RELATED TERMS
  1. Net Volume

    A term in technical analysis that represents a security's uptick ...
  2. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator ...
  3. Money Flow

    Calculated by averaging the high, low, and closing prices, and ...
  4. Golden Cross

    A crossover involving a security's short-term moving average ...
  5. Cup and Handle

    A pattern on bar charts resembling a cup with a handle. The cup ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, ...
Related Articles
  1. Technical Indicators

    The Basics Of Money Flow

    Learn how this indicator uses both price and volume to record a more complete picture of price action.
  2. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  3. Charts & Patterns

    How To Use Volume To Improve Your Trading

    The basic guidelines to analyzing volume may not apply in all situations, but overall, they can help direct entry and exit decisions.
  4. Chart Advisor

    These 3 ETFs Suggest Commodities Are Headed Lower (COMT,CCX,DBC)

    The charts of these three exchange traded funds suggest that commodities are stuck in a downtrend and it doesn't look like it will reverse any time soon.
  5. Chart Advisor

    3 Charts That Suggest Now Is The Time To Invest In Real Estate (VNQ, SPG,PSA)

    Real estate assets have some of the strongest uptrends around. We'll take a look at three candidates poised for a move higher.
  6. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  7. Stock Analysis

    3 Risks U.S. Equities Face in 2016

    Find out why the probability of a U.S. stock bear market is increasing in 2016 and what the greatest risks are to the bull market that is almost 7 years old.
  8. Active Trading Fundamentals

    New Traders: Trade the Market in 5 Steps

    New traders shouldn’t throw money at securities without knowing why prices move. Follow these five steps to tilt the odds in your favor.
  9. Chart Advisor

    Watch For a Bounce in These Emerging Markets (BRF, PEK)

    While downtrends are clearly in control of the direction of many emerging market ETFs, short-term indicators suggest a bounce higher could be in the cards.
  10. Investing Basics

    Valuation Models: Apple’s Stock Analysis With CAPM

    The capital asset pricing model, or the CAPM, estimates the expected return of an asset based on the systematic risk of the asset’s return.
RELATED FAQS
  1. What are the main differences between Money Flow & Money Flow Index (MFI)?

    The concept behind money flow and the money flow index (MFI) are both closely related to momentum and volume. Like many leading ... Read Full Answer >>
  2. What are the best technical indicators to complement the McGinley Dynamic Indicator?

    The McGinley dynamic indicator was actually designed as a smoothing tool, useful for trend following but not for generating ... Read Full Answer >>
  3. What are the main differences and similarities between Money Flow Index & On Balance ...

    Though both are useful momentum indicators popular among analysts and traders, the Money Flow Index (MFI) and On Balance ... Read Full Answer >>
  4. What are the best technical indicators to complement the Money Flow?

    The money flow index (MFI) is a momentum indicator that is popular among traders and analysts. Its calculation and interpretation ... Read Full Answer >>
  5. What are the main differences and similarities between the Money Flow Index (MFI) ...

    The money flow index (MFI) represents the volume-weighted adaptation of the more widely used relative strength index (RSI). ... Read Full Answer >>
  6. How do I identify divergence on a security?

    Divergence occurs when a security's price moves opposite relevant indicators, creating a disparate situation that traders ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center