MFI — Money Flow Index

Overview

The Money Flow Index (MFI) is essentially a volume-weighted RSI. Developed by Gene Quong and Avrum Soudack, it combines price and volume into a single oscillator that ranges from 0 to 100. Where RSI looks only at price gains/losses, MFI weights each move by the volume that accompanied it.

Formula

Typical Price = (High + Low + Close) / 3
Raw Money Flow = Typical Price × Volume

If today’s TP > yesterday’s: Positive Money Flow += Raw MF
If today’s TP < yesterday’s: Negative Money Flow += Raw MF

Money Ratio = sum(Positive MF) / sum(Negative MF)  over N periods

MFI = 100 - (100 / (1 + Money Ratio))

Default N = 14

Default Settings

• Period: 14
• Overbought: 80
• Oversold: 20

Note: MFI uses 80/20 thresholds (more extreme than RSI’s 70/30) because volume-weighting makes it less prone to false extremes.

How to Use It

1. Overbought / Oversold

• MFI above 80 — overbought, volume-confirmed
• MFI below 20 — oversold, volume-confirmed

Stronger signal than RSI because volume confirms the move’s significance.

2. Divergence

Like RSI, but with added volume insight. Bearish divergence in MFI is particularly powerful — it means price is making new highs WITHOUT volume support.

3. Failure Swings

MFI fails to return to oversold (or overbought) within expected timeframe = strong trend continuation signal.

4. Volume Reversal Detection

Sudden swing from extreme MFI level often precedes reversal. Look for rejection candlestick patterns at these moments.

Strengths

• Volume-weighted — more meaningful than pure RSI
• Fewer false signals in low-volume conditions
• Bounded scale (0–100) easy to interpret
• Effective in equity / futures markets with real volume data

Weaknesses & Common Mistakes

• Forex limitations — tick volume is approximate, weakens signal quality
• Stays embedded in trends — same as RSI; doesn’t signal turn timing
• Period sensitivity — shorter periods (5–9) generate too many false signals
• Treating 80/20 as automatic reversal — in strong volume-backed trends, MFI can stay extreme for extended periods

Best Combinations

• MFI + Trend Filter — trade MFI extremes only against the higher-timeframe trend reluctantly; align with trend for high-probability entries
• MFI + Volume Profile — MFI extreme at key volume node = strong reversal candidate
• MFI + Price Action — confirmation from candlestick patterns at MFI extremes

Practical Example

Tesla stock daily chart. After a 20 % rally, MFI reaches 88 (overbought). Price forms a doji at resistance. MFI begins to fall, dropping below 80 while price still hovers near high — bearish divergence with volume confirmation. Short entry, stop above the doji high, target previous support level.

Bottom Line

MFI is RSI with an opinion about volume. If you trust volume data on your market, MFI is the superior choice over plain RSI.