What is the Money Flow Index?

The Money Flow Index (MFI) is a technical oscillator that uses both price and volume data to identify overbought and oversold signals. It also detects divergences that may indicate upcoming trend reversals. The MFI oscillates between 0 and 100.

Unlike the Relative Strength Index (RSI), which uses only price data, the MFI incorporates volume — making it a volume-weighted RSI.

Key Takeaways

• The MFI generates overbought/oversold signals using both price and volume.
• Readings above 80 are considered overbought; below 20 are oversold. More aggressive traders may use 90/10 as thresholds.
• Divergences between MFI and price often suggest upcoming trend shifts.

When price rises from one period to the next, raw money flow is positive and added to positive money flow. If price drops, it contributes to negative money flow.

Higher typical price → positive money flow → buying pressure. Lower typical price → negative money flow → selling pressure.

These flows are used to calculate the money ratio, which is then used to compute the Money Flow Index (MFI), oscillating between 0 and 100.

Key Highlights

• MFI measures buying/selling pressure based on price and volume.
• Values range between 0–100.
• Above 80 = overbought (sell); below 20 = oversold (buy).

Formula for the Money Flow Index

1. Typical Price: (High + Low + Close) / 3

2. Raw Money Flow: Volume × Typical Price

3. Money Ratio: 14-period Positive Money Flow / 14-period Negative Money Flow

4. MFI: 100 – [100 / (1 + Money Ratio)]

MFI Signals

The MFI provides three main signals: overbought/oversold conditions, divergences, and failure swings.

Overbought/Oversold

An MFI above 80 may suggest a security is overbought. Below 20, it’s considered oversold. These thresholds highlight possible price extremes and potential reversals.

If MFI exceeds 90, it’s a very strong overbought signal; under 10 is a strong oversold signal — though these extremes are rare.

Divergences

Divergences occur when price and MFI move in opposite directions, often signaling a reversal.

Bullish Divergence

Price makes a new low, but MFI makes a higher low → buying pressure is increasing → possible bullish reversal.

Bearish Divergence

Price makes a new high, but MFI makes a lower high → buying pressure is weakening → possible bearish reversal.

Failure Swings

Unlike divergences, failure swings rely solely on MFI movement and signal potential reversals.

Bullish Failure Swing

• MFI drops below 20 (oversold)
• MFI rebounds above 20
• MFI pulls back but stays above 20
• MFI breaks above prior high → signal to buy

Bearish Failure Swing

• MFI rises above 80 (overbought)
• MFI falls below 80
• MFI rebounds but stays below 80
• MFI breaks below prior low → signal to sell

Related Concepts

• Volume Weighted Average Price (VWAP)
• Average Selling Price (ASP)
• Bullish vs Bearish Indicators
• Relative Strength Index (RSI)