Money Flow Index (MFI)

The Money Flow Index (MFI) is a momentum indicator used in technical analysis that measures how strongly money is flowing into or out of an asset over a set period, usually 14 days or bars. It combines price and trading volume into a single reading between 0 and 100. High readings suggest strong buying pressure and possibly an overbought market; low readings suggest heavy selling and possibly an oversold one.

The MFI was developed by Gene Quong and Avrum Soudack. Because its calculation closely follows that of the Relative Strength Index, but weights each period by volume, it is often described as a volume-weighted RSI. It belongs to the same family as other volume-based tools such as the Klinger Oscillator, the accumulation/distribution indicator and the Negative Volume Index, and is available on most charting platforms for shares, currencies and crypto.

Imagine a shop that records both what it charges each day and how many customers come in. A day with rising prices and a crowded shop says more about demand than a day with rising prices and an empty shop. The MFI applies the same thinking to a market: it gives more weight to price moves that happen on heavy trading.

Over the past two weeks or so, it adds up the "money" that flowed in on up days and the money that flowed out on down days, and turns the comparison into a score out of 100. A score near 100 means almost all recent activity has been buying; a score near zero means mostly selling. Most of the time, the score sits somewhere in between.

The calculation has four steps. First, find the typical price for each period:

Second, multiply it by volume to get raw money flow, $\text{RMF} = \text{TP} \times \text{Volume}$. Third, add up raw money flow for all periods in which the typical price rose (positive flow) and for all periods in which it fell (negative flow), over the look-back window, and divide one by the other to get the money ratio, $\text{MR} = \text{Positive flow} \div \text{Negative flow}$. Finally:

• $\text{TP}$ is the typical price for each period.
• $\text{RMF}$ is raw money flow, the typical price times volume.
• $\text{MR}$ is the money ratio of positive to negative flow over the window.

For example, suppose that over 14 days the positive money flow totals 1,200,000 and the negative money flow totals 800,000. The money ratio is 1,200,000 ÷ 800,000 = 1.5. The MFI is 100 − 100 ÷ (1 + 1.5) = 100 − 40 = 60, a reading that leans towards buying pressure without being extreme.

• Overbought and oversold levels. Readings above 80 are commonly treated as overbought and below 20 as oversold; some traders use 90 and 10 to catch only extremes. These levels flag stretched conditions, not guaranteed turning points.
• Divergence. When price makes a new high but the MFI makes a lower high, buying pressure may be fading, a possible warning of a reversal. The opposite pattern at lows can hint at a bottom.
• Failure swings. A move above 80 that falls back, fails to regain the level and then breaks below a recent low is read by some as a sell signal, and the mirror pattern near 20 as a buy signal.
• Confirmation. Many traders use the MFI to confirm signals from trend tools such as moving averages or MACD, rather than on its own.

The RSI uses only closing prices, while the MFI includes high, low and volume. In theory that makes the MFI more sensitive to whether a move has real participation behind it; a rise on thin volume moves the MFI less than the same rise on heavy volume. In practice, the two often give similar readings, and the MFI can be noisier because volume data varies more than price. Choosing between them is largely a matter of preference and of how reliable the volume data is for the asset.

The MFI can stay above 80 or below 20 for long periods in strong trends, so selling simply because it is "overbought" in a bull market can mean exiting far too early. Like most oscillators, it gives frequent false signals in choppy, sideways markets. In crypto, volume figures are split across many exchanges and have at times been inflated by wash trading, which can distort the money-flow calculation. The indicator describes recent price and volume only and does not account for news, fundamentals or liquidity conditions, and research has not shown that it reliably beats the market after trading costs. It is best treated as one input among several, with clear risk limits.