130 Money Flow Index (MFI)

The amount of money going into a trading period is equal to the stock price at the given period multiplied by the shares (volume) traded in that period.

In this index, the amount of money during prior periods (Often 14) is separated between the periods when prices were up or down. The index simply calculates the ratio of money flowing when prices when up to the times when prices were down.

This is very similar to the RSI index. The main difference that MFI includes volume.

As RSI, values above 80 indicates that the stocks is overbought (Many people buying) and values below 20 is oversold. As RSI, MFI can be use in divergences with price to spot price reversals.

In the image blow, note how price is going up, but the total capital (money flowing) is going down. From this divergence in patterns, you can expect that prices would reverse and start going down.

Figure 13.18: Money Flow Index