Money Flow Index (MFI)
Quick Definition
A volume-weighted momentum oscillator that measures buying and selling pressure by combining price and volume data, often called the "volume-weighted RSI."
Key Takeaways
- MFI combines price and volume into one oscillator — essentially a volume-weighted RSI that ranges from 0 to 100.
- Readings above 80 signal overbought; below 20 signal oversold — volume inclusion makes these levels more meaningful.
- MFI divergences with price are powerful signals because they reveal whether volume supports the price trend.
What Is Money Flow Index (MFI)?
The Money Flow Index (MFI) is a technical oscillator that uses both price and volume to measure buying and selling pressure, making it a volume-weighted version of the Relative Strength Index (RSI). It oscillates between 0 and 100 and is calculated in several steps: first, the typical price (average of high, low, close) is computed; then "money flow" is determined by multiplying typical price by volume; positive money flow (typical price higher than previous period) and negative money flow (typical price lower) are summed over 14 periods; finally, the money flow ratio is converted to the MFI scale. Readings above 80 indicate overbought conditions (strong buying pressure that may be exhausting), while readings below 20 indicate oversold conditions (heavy selling that may be climactic). The MFI's inclusion of volume gives it an advantage over pure price-based oscillators: a price move on high volume carries more weight, making divergences between MFI and price particularly reliable. Bullish divergence (price making new lows while MFI makes higher lows) suggests accumulation, while bearish divergence (price making new highs while MFI makes lower highs) suggests distribution by smart money.
Money Flow Index (MFI) Example
- 1The MFI dropped below 20 while the stock tested the major support level at $75 — the extreme oversold reading on heavy volume suggested capitulation selling, and the stock reversed sharply to $92 over the next month.
- 2A bearish MFI divergence developed over three weeks: the stock made three consecutive new highs but the MFI made lower highs each time, revealing that volume was not confirming the price advance — a 15% correction followed.
Related Terms
Relative Strength Index (RSI)
A momentum indicator measuring the speed and magnitude of price changes on a 0-100 scale, used to identify overbought or oversold conditions.
On-Balance Volume (OBV)
A cumulative volume indicator that adds volume on up days and subtracts volume on down days, designed to show whether volume is flowing into or out of a security.
Volume
The number of shares or contracts traded in a security or market during a given period, indicating trading activity and liquidity.
Chaikin Money Flow (CMF)
A volume-weighted indicator that measures buying and selling pressure over a specified period by analyzing where the close falls within the high-low range relative to volume.
Moving Average
A calculation that averages a security's price over a specific number of periods, smoothing price data to identify trends.
Moving Average Convergence Divergence (MACD)
A trend-following momentum indicator showing the relationship between two moving averages of a security's price.
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