MFI: RSI with volume
The Money Flow Index (MFI) is similar to the RSI but also takes volume into account along with price. It fluctuates between 0 and 100; above 80 is considered overbought, and below 20 is considered oversold.
In the panel below the chart above, you see a line fluctuating between 0 and 100: this is the Money Flow Index (MFI). There are two horizontal lines in the panel at the 20 and 80 levels. If the line is above 80, it is in the overbought region; if it is below 20, it is in the oversold region.
In the RSI lesson, you learned about an indicator that compares the strength of price increases and decreases. MFI applies the same idea to money itself. For each candle, the average price (the average of high, low, and close) is multiplied by the volume of that candle; this is a rough measure of the money that changed hands during that period. Candles where the average price is higher than the previous candle are considered 'money flowing in', and those with a lower average price are considered 'money flowing out'. MFI shows the share of money flowing in over the last 14 candles as a percentage between 0 and 100.
This difference is important. A price increase with low volume will push the RSI up but will not affect the MFI as much, because there isn't much money behind it. A price decrease with high volume, however, will pull the MFI sharply down. This is why MFI is used to question whether there is real money behind the price movement.
Divergence can also be read in MFI. If the price makes a new low while the MFI makes a higher low, money flowing out might be decreasing even if selling continues. If the price makes a new high while the MFI makes a lower high, money flowing into the uptrend might be weakening.
Since MFI is based on volume, it depends on the quality of the volume data. In a data source with missing or zero volume data, MFI loses its meaning and can turn into a flat line.
How to read it
- Read above 80 and below 20 as extreme regions; however, in a strong trend, MFI can remain in an extreme region for a long time.
- Read MFI and RSI together: if both say the same thing, there is also volume behind the movement.
- Look for divergence: if the price makes a new low while MFI makes a higher low, money flowing out is decreasing.
- Give less weight to MFI in symbols with low volume.
In this state right now
Liquid symbols where the Money Flow Index is currently below 20 (in the oversold region) on the daily chart.
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Trap
All the traps in RSI also apply here: below 20 does not mean 'cheap', and above 80 does not mean 'expensive'. In a strong downtrend, MFI can stay below 20 for days, and those who buy every day thinking 'it will turn now' will lose money. The trap specific to MFI is volume data: in symbols where volume is unreliable or very low, a few large transactions can swing the indicator from one extreme to the other.
Tip
Money flow (CMF) in the volume flow lesson and MFI are related. MFI acts like a short-term oscillator and shows extreme regions; CMF, on the other hand, describes more smoothly which direction money has been flowing for a while. If both point in the same direction, the evidence is strengthened.
Glossary
- MFI
- Money Flow Index; an oscillator that uses price and volume together, fluctuating between 0–100.
- Money flowing in
- The sum of price × volume in candles where the average price is higher than the previous candle.
- Money flowing out
- The sum of price × volume in candles where the average price is lower than the previous candle.
- Oversold
- The region where MFI is below 20; indicates that selling pressure is at an extreme, but not a guarantee of a reversal.
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Read MFI and RSI together in an analysis →For information only, not investment advice.