The Money Flow Index (MFI) is a technical indicator similar to the Relative Strength Index (RSI) and is known as the volume-weighted RSI. The money flow index (MFI) is an oscillator that ranges from 0 to It is used to show the money flow (an approximation of the dollar value of a day's trading) over several days. The Money Flow Index (MFI) is an oscillator that uses both price and volume to measure buying and selling pressure. Created by Gene Quong and Avrum Soudack, MFI is also known as volume-weighted RSI. MFI starts with the typical price for each period.Calculation · Interpretation · Overbought/Oversold · Divergences and Failures.
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How to Calculate and Trade the Money Flow Index Indicator | Market Traders
If the Money Flow Index is declining and your trading system generates a sell signal, the odds of the stock price going down would be much higher. Similarly, you can utilize the Money Flow Index indicator for taking money flow indicator long position when the money flow index chart is going up.
There is another way you can use the Money Flow Index indicator, and that is as a divergence signal. If you find that the stock price is going up, money flow indicator the Money Flow Index is declining, it would provide insight that the uptrend is weak and should not be trusted.
A divergence like this indicates that the stock price would likely start a correction phase.
Money flow indicator can apply the same divergence strategy when the price is falling, but the Money Flow Index is rising.
Keep in mind, during strong trends, the MFI may remain overbought or oversold for extended periods. If the underlying price makes a new high or low that money flow indicator confirmed by the MFI, this divergence can signal a price reversal.
Trade entry is identified by the upward pointing green arrow. This trade made about a 4.
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Trade 2 This is a similar setup to the first where we are betting on a reversal in the trend. Trade 3 Here money flow indicator get probably our best trade setup of the ones listed.
Price came up to money flow indicator point of being both overbought according to the MFI and touched the top band of the Keltner channel.
Once again, the trade was exited upon a touch of the middle band of the channel.
Money Flow Index (MFI)
Trade 4 Here we took a third long trade. However, after money flow indicator slight initial bounce, we did not get our exit signal touch of the middle band.
It fell a bit before eventually closing out according to this rule at a loss of 2. Money flow is positive when the typical price is rising on successive trading days.
Money Flow Index indicator for Trading - Tutorial and Examples
A running tally of the negative or positive money flow is then kept. The opposite is also true. When price and momentum fall far enough they can be considered oversold.
Traditional overbought territory starts above 80 and oversold territory starts below These values are subjective however, and a technical analyst can set whichever thresholds they choose. The example money flow indicator is based on a period Money Flow Index, which is the default setting in SharpCharts and the setting recommended by the creators.
Raw Money Flow is positive when the typical price advances from one period money flow indicator the next and negative when the typical price declines.