Money Flow Index (MFI 14)

MFI 14 is a volume-weighted version of RSI. It uses both price and volume to spot overbought or oversold conditions.

The calculation:

Typical Price = (High + Low + Close) / 3
Raw Money Flow = Typical Price × Volume
Money Flow Ratio = Positive MF / Negative MF (over 14 periods)
MFI = 100 - (100 / (1 + Money Flow Ratio))

How to interpret:

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MFI > 80: Overbought; potential selling opportunity

MFI < 20: Oversold; potential buying opportunity

MFI = 50: Neutral; balanced buying and selling pressure

Advantages over RSI:

• Volume integration: Incorporates trading activity, not just price
• Money flow concept: Tracks actual capital moving in and out
• Stronger signals: Volume confirmation can produce more reliable signals

Trading applications:

• Divergences: MFI/price divergences can signal reversals
• Failure swings: MFI fails to reach extremes on second attempt
• Trend confirmation: Rising MFI in uptrend confirms buying pressure
• Volume validation: High MFI on breakouts adds confirmation

Limitations:

• Lagging indicator: Based on historical price and volume
• False signals in trends: Can stay overbought/oversold in strong trends
• Volume data needed: Requires reliable volume information