The Money Flow Index (MFI) Indicator is a technical analysis tool used to measure buying and selling pressure in security.
It is based on both price and volume data and is used to identify potential trend reversals, bullish or bearish divergences, and confirm price trends.
The MFI Indicator is calculated by first determining the typical price for a period, which is the average of the high, low, and close for that period.
Then, the positive and negative money flow is calculated by multiplying the typical price by the volume and determining whether the price has increased or decreased from the previous period.
In a chart, the MFI Indicator is typically displayed as a line that oscillates between 0 and 100.
Traders can use the MFI Indicator in various ways, such as identifying potential trend reversals when the MFI crosses above or below 50 or using it in conjunction with other technical indicators or chart patterns.
The MFI Indicator is then calculated by dividing the sum of the positive money flow by the sum of the negative money flow over a specific period and normalizing the result to a scale of 0 to 100.
A reading above 80 is considered overbought, while a reading below 20 is considered oversold.
Buy Signal Generation With Money Flow Index (MFI) Indicator
When the MFI Indicator reaches a reading of 80 or above, it is considered overbought, which means that there is a high level of buying pressure in the market. This can be a potential signal for a buy trade, as it suggests that the price may continue to increase in the short term.
Sell Signal Generation With Money Flow Index (MFI) Indicator
When the MFI Indicator reads 20 or less, it is regarded as oversold, indicating that the market is under intense selling pressure. This may be a potential sell signal because it indicates that the price may drop further in the near future.