The Money Flow Index ("MFI") is a
momentum indicator that measures the strength of money flowing in and out of a security.
It is related to the Relative Strength Index, but where the RSI only incorporates prices,
the Money Flow Index accounts for volume. Lines
again should be drawn at 80 and 20 as these are turning points of relevance for this
graph.
The Money Flow Index requires a series of calculations.
First, the period’s Typical Price is calculated.
Next, Money Flow (not the Money Flow Index) is calculated
by multiplying the period’s Typical Price by the volume.
If today’s Typical Price is greater than
yesterday’s Typical Price, it is considered Positive Money Flow. If today’s
price is less, it is considered Negative Money Flow.
Positive Money Flow is the sum of the Positive Money over
the specified number of periods. Negative Money Flow is the sum of the Negative Money over
the specified number of periods.
The Money Ratio is then calculated by dividing the
Positive Money Flow by the Negative Money Flow.
Finally, the Money Flow Index is calculated using the
Money Ratio.
