Money Flow index

Money Flow Index

The Money Flow Index measuresmoney flow of a security, using volume and price for calculations. Marketbottoms below 20 and tops above 80. Divergence of price and Money Flow Indexare also used. The Money Flow Index ("MFI") is a momentum indicatorthat measures the strength of money in and out of a instrument. It accounts forvolume. Money flow is an indicator that calculates an indexed value based onprice and volume for the number of bars specified in the input Length.Calculations are made for each bar with an average price greater than theprevious bar and for each bar with an average price less than the previous bar.These values are then indexed to calculate and plot the money flow. The use ofboth price and volume provides a different perspective from price or volumealone. The money flow indicator tends to show dramatic oscillations and can beuseful in identifying overbought and oversold conditions.

It is used to measure thestrength of money flowing in and out of an instrument. It is also used to warnof trend weakness and likely reversal points. The indicator compares the valuetraded on up-periods to value traded on down-periods. If the price trendshigher and the MFI trends lower (or vice versa), a reversal may be imminent.MFI can be used to determine if there is too much or too little volumeassociated with a security. A instrument is considered overbought if the MFIindicator reaches 80 and above (a bearish reading). On the other end of thespectrum, a bullish reading of 20 and below suggests a instrument is oversold.