Money Flow Index
Technical IndicatorsA volume-weighted RSI that combines price and volume data to measure buying and selling pressure. It oscillates between 0 and 100, with readings above 80 indicating overbought and below 20 indicating oversold conditions.
What Is the Money Flow Index?
The Money Flow Index (MFI) is often described as the volume-weighted RSI (Relative Strength Index). It uses the typical price (average of high, low, and close) multiplied by volume to create "money flow." Positive money flow occurs when the typical price is higher than the previous period, and negative when it is lower. The ratio of positive to negative money flow over a lookback period (default 14) produces the MFI value from 0 to 100.
MFI Trading Signals
Above 80 is overbought; below 20 is oversold. Because MFI incorporates volume, these signals carry more weight than RSI (Relative Strength Index) alone. An RSI reading of 75 tells you momentum is strong. An MFI reading of 75 tells you momentum is strong AND heavy volume is behind the move. MFI divergence is particularly powerful: when EUR/USD makes a new high on light volume, MFI will often show a lower high even if RSI confirms the price high. This volume divergence is a strong warning signal.
MFI in Forex
Since forex uses tick volume rather than true volume, MFI signals are approximations. Despite this, tick volume correlates well enough with actual market activity to make MFI useful. Use MFI on daily or 4-hour charts for the best results. It is particularly effective at identifying exhaustion at the end of major trends, where price continues pushing but volume (and therefore MFI) diverges. Combine with Bollinger Bands for confluence at turning points.
Related Terms
RSI (Relative Strength Index)
A momentum oscillator that measures the speed and magnitude of recent price changes on a scale of 0 to 100. Readings above 70 suggest overbought conditions; below 30 suggest oversold conditions.
On-Balance Volume
A cumulative volume-based indicator that adds volume on up days and subtracts volume on down days. Rising OBV confirms uptrends, while falling OBV confirms downtrends. Divergence between OBV and price can signal upcoming reversals.
Accumulation/Distribution
A cumulative volume-based indicator that uses the relationship between a pair's closing price and its high-low range to determine whether money is flowing into (accumulation) or out of (distribution) a currency pair.
VWAP (Volume Weighted Average Price)
An intraday benchmark that calculates the average price weighted by volume. VWAP resets daily and shows the average price at which a pair has traded throughout the session, helping traders identify whether they are buying above or below fair value.