MetaTrader Indicators

Money Flow Index or MFI is another technical indicator used to indicate the rate, based on which money is invested into securities and withdrawn from the same. Volume is of great importance for MFI and that makes it different from Relative Strength Index, or else both follow the same procedure of construction and analysis.

The following points must be considered while you are analyzing MFI:

Whether the movement of price is divergent from the indicator i.e.; with the rise in price the MFI slips down or vice versa. In such cases the price tends to turn.

Money Flow Index or MFI value is usually above 80 and below 20, which signifies the market’s probable rise or fall.

Calculation

The Money Flow Index is calculated in several stages. In the first stage we the typical price or TP of that particular period is defined.

TP= (HIGH+LOW+CLOSE)/3

The next stage involves calculation of the amount of Money Flow (MF)

MF=TP*VOLUME

If typical price (TP) today is greater from what it was previously, then it is noted as positive Money Flow (MF) .if typical price today is smaller than what it was previously, then it is noted as negative Money Flow.

The summation of positive flow of money for a certain time period is known as positive flow of money. The summation of negative flow of money for a certain time period is known as negative flow of money.

Calculation of the momey ratio (MR) is the next stage. The method involves division of positive money flow by negative money flow.

MR=Positive Money Flow (PMF)/ Negative Money Flow (NMF)

The final step is the calculation of the MFI or Money Flow Index, which is done by using money ratio.

MFI= 100-(100/(1+ MR))