Volume · Indicator
MFI is a volume-weighted version of RSI on a 0-100 scale, with 80 and 20 marking the conventional extremes.
Overview
The Money Flow Index is a volume-weighted RSI incorporating both price and volume. Readings above 80 are conventionally treated as overbought and below 20 as oversold, and divergences between MFI and price can signal upcoming reversals. Structurally it follows the same logic as RSI, comparing positive periods against negative ones, but each period is weighted by the money that changed hands rather than counted equally.
That weighting is the whole point. RSI treats a one per cent advance on record volume identically to a one per cent advance on a holiday session. MFI multiplies each period's typical price by its volume, so heavy days dominate the ratio. The result is an oscillator that is harder to push to an extreme on thin trade, which many traders regard as a more honest read on conviction.
Because it needs volume, MFI is only as good as the volume data behind it. On instruments where reported volume is fragmented across venues, or on spot foreign exchange where there is no consolidated volume at all, the indicator is measuring something less meaningful than it appears to be.
How it is calculated
The typical price of each bar is multiplied by that bar's volume to give the raw money flow. Bars where the typical price rose from the previous bar count as positive flow and bars where it fell count as negative flow, with unchanged bars excluded.
The two sums over the lookback are divided to give the money ratio, and the same compression used by RSI maps that ratio onto a 0-100 scale. Note the calculation uses simple sums over a fixed window rather than the recursive smoothing RSI uses, so MFI drops old bars abruptly rather than fading them out.
Typical price = (high + low + close) / 3 Raw money flow = Typical price * Volume Positive flow = sum of raw money flow on bars where typical price rose Negative flow = sum of raw money flow on bars where typical price fell Money ratio = Positive flow / Negative flow MFI = 100 - 100 / (1 + Money ratio)
Inputs
How to read it
Read MFI the way you would read RSI, with the added interpretation that the reading reflects money rather than bar count. A high MFI means most of the traded value over the window occurred on bars where the typical price was rising, which describes buying pressure backed by real participation.
The 50 level is the balance point where positive and negative money flow are equal, and sustained readings on one side of it describe which way value has been flowing. Some traders use this rather than the 80 and 20 lines, which behave the same way in trends as RSI's 70 and 30 do.
Divergence with price is the reading MFI is most used for, because the volume weighting makes it more informative than the RSI equivalent. Price making a new high while MFI does not says the latest advance carried less traded value behind it than the previous one.
Signals to look for
Readings above 80 or below 20 mark extremes in the balance of money flow. Most traders wait for the line to cross back through the threshold rather than acting on the first touch.
A new price high with a lower MFI high, or a new price low with a higher MFI low, indicates the money behind the move is not confirming it. It is often cited as MFI's most useful output.
MFI reaching an extreme, retreating, then failing to exceed that extreme on the next attempt before breaking its intervening trough is the volume-weighted version of Wilder's RSI failure swing.
MFI holding above or below 50 identifies which direction traded value has been flowing over the window, and is used as a simple regime filter.
Limitations
Frequently asked questions
MFI is a volume-weighted version of RSI on a 0-100 scale, with 80 and 20 marking the conventional extremes.
Read MFI the way you would read RSI, with the added interpretation that the reading reflects money rather than bar count. A high MFI means most of the traded value over the window occurred on bars where the typical price was rising, which describes buying pressure backed by real participation.
Overbought and oversold: Readings above 80 or below 20 mark extremes in the balance of money flow. Most traders wait for the line to cross back through the threshold rather than acting on the first touch.
MFI depends entirely on volume quality. On instruments with fragmented or unreported volume, including spot forex, the weighting is based on incomplete data and the readings are less meaningful than they look.
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