MFI - Money Flow Index

Stock Analysis and Share Technical Indicators


MFI in stock and share technical analysis stands for Money Flow Index. This indicator is based on similar principals to the RSI (Relative Strength Index) but takes into consideration the volume of shares traded, in order to gain a picture of the flow of money into, or out of, a stock or share. The MFI is an oscillator which ranges from 0 to 100

Calculation of the MFI

Instead of the RSI's method of applying calculations to the daily change in closing prices of a certain share over a given period of days, the Money Flow Index looks at each day's Money Flow by incorporating into the calculations the the volume of shares traded. To start, the "typical price" for a share or stock for each day is calculated by adding the day's high to the day's low, then adding the day's closing price and dividing the result by 3. Once the typical price has been established, this is multiplied by the day's volume (the total number of shares traded during that day), resulting in a figure which is called the Money Flow for the day.

By comparing yesterday's typical price to today's typical price you can establish whether today's Money Flow is positive or negative. A typical price for today which is higher than yesterday's typical price will mean that today's Money Flow is positive. Conversely, if today's typical price is lower than yesterday's then today's Money Flow is negative.

All of the positive money flow figures during the period (the MFI typically uses a 14 day period of data) are added together to give a positive money flow figure. Then all of the negative money flow figures in the period are added together to produce a negative money flow figure.

The Money Ratio is then calculated by dividing the positive money flow by the negative money flow .

Then finally, we obtain the MFI as follows:
Money Flow Index = 100 - (100(1+Money Ratio ))

Money Flow Index interpretation

Analysts consider that a Money Flow Index reading of under 20 in the indicates that the stock or shares are oversold, and represents a possible buying opportunity. Conversely, a MFI value of over 80 is considered to be an overbought indicator, and is a sign to consider seling.

In addition, when it comes to MFI interpretation, divergences are considered to be of importance. If the stock price is trending upwards but MFI is trending down (or vice-versa), a price reversal may be imminent.

More Technical analysis articles by Pandacash:

Moving Average MFI - Money Flow Index Exponential Moving Average
RSI - Relative Strength Index Moving Average Envelopes ROC - Rate of Change
Fast and Slow Stoch Stochastics W%R - Williams' %R MACD
Standard Deviation Definition and Usage Calculation of Standard Deviation Normal Distribution and Standard Deviation

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