Money Flow Index (MFI)

MFI calculation involves four steps over a typical 14-period lookback:

Step 1 — Typical Price: For each bar, compute (High + Low + Close) / 3.

Step 2 — Raw Money Flow: Multiply the typical price by the bar's volume. This converts volume into dollars, weighting each bar by how much money actually moved.

Step 3 — Positive vs. Negative Flow: If today's typical price is higher than yesterday's, the raw money flow is classified as positive (buying pressure). If lower, it is negative (selling pressure). Sum all positive flows and all negative flows over the lookback period.

Step 4 — Money Flow Ratio and MFI: Divide total positive flow by total negative flow to get the Money Flow Ratio. Then: MFI = 100 - (100 / (1 + Money Flow Ratio)).

The result oscillates between 0 and 100. A reading of 80+ means buying volume has dominated the period — potential overbought territory. Below 20 means selling volume has dominated — potential oversold territory.

Because volume is baked into the formula, MFI gives more weight to high-volume days. A $1 price increase on 10 million shares contributes far more to the MFI reading than the same move on 500,000 shares. This is why MFI is considered more reliable than price-only oscillators for confirming breakouts and divergences.

RSI and MFI share the same mathematical framework (both produce 0-100 oscillator values using the same formula structure), but RSI uses only price while MFI uses price multiplied by volume.

Use RSI when: You are trading highly liquid large-cap stocks where volume is consistently high and doesn't add much signal. RSI is also simpler and available on every charting platform, making it the default for quick analysis.

Use MFI when: Volume confirmation matters — breakout trades, momentum entries, and accumulation/distribution analysis. MFI is especially useful on mid-cap and small-cap stocks where volume spikes are more meaningful and institutional accumulation is easier to detect.

Use both together: The strongest signals occur when RSI and MFI agree. If RSI shows overbought (above 70) and MFI shows overbought (above 80), the overbought condition is confirmed by both price momentum and volume. If RSI shows overbought but MFI does not, the rally may have more room — the price is extended but buying volume is still healthy.

Divergence comparison: MFI divergences tend to be earlier and more reliable than RSI divergences because declining volume often precedes price reversals. A stock making new highs with declining MFI (fewer dollars supporting each new high) is a stronger warning than the same divergence on RSI alone.

Overbought/oversold reversals: The simplest MFI strategy. Buy when MFI drops below 20 and turns back up; sell when MFI rises above 80 and turns back down. This works best in range-bound markets. In strong trends, MFI can remain overbought or oversold for extended periods — trending stocks frequently stay above 60 for weeks.

MFI divergence trades: Look for price making a new high while MFI makes a lower high (bearish divergence) or price making a new low while MFI makes a higher low (bullish divergence). Divergences are the highest-probability MFI signal because they reveal weakening conviction behind the price move.

Breakout confirmation: Before entering a breakout above resistance, check MFI. An MFI reading above 50 and rising during the breakout confirms that volume supports the move. An MFI reading below 50 or declining during the breakout suggests the move may lack staying power.

Volume-confirmed trend following: In an uptrend, use MFI pullbacks to the 40-50 zone as entry points — this represents a healthy reset in buying pressure without a full reversal. Below 30 in an uptrend is unusual and may signal trend exhaustion rather than a buying opportunity.

Failure swings: An MFI failure swing occurs when MFI enters overbought territory (above 80), drops below 80, fails to reach 80 again on the next rally, and then breaks below the prior MFI low. This pattern is a strong sell signal because it shows diminishing buying pressure across two consecutive attempts.