Money Flow Index (MFI)
The Money Flow Index (MFI) is a momentum oscillator that measures buying and selling pressure using both price and volume. It functions similarly to the Relative Strength Index (RSI), but with one big difference: it factors in volume, giving you a clearer view of how committed traders really are.
Because of that, the MFI is often used to spot overbought/oversold conditions, divergences, and volume-backed reversals before they become obvious.
How the MFI Works
The MFI tracks the flow of money by multiplying the typical price (average of high, low, and close) by the volume of each candle. It then compares the result between up days and down days to calculate the Money Flow Ratio.
Then it uses that ratio to create a normalized oscillator that ranges between 0 and 100.
| MFI Value | What It Suggests |
|---|---|
| Above 80 | Overbought (price may pull back) |
| Below 20 | Oversold (bounce may follow) |
| Between 40–60 | Neutral / Consolidation zone |
A value rising above 80 can signal that the asset is overextended, while a drop below 20 often suggests oversold conditions. However, just like with RSI, extreme values can remain for a while in trending markets.
How Traders Use It
The MFI is commonly used to spot:
Reversal Points
Overbought or oversold readings can hint at trend shifts.
Divergence Signals
If price is making higher highs but MFI is falling, that may suggest a weak rally. If price is making lower lows but MFI rises, it may indicate hidden buying pressure.
Volume Strength
The MFI helps confirm whether a trend is backed by actual volume flow or just thin, low-conviction moves.
Example Setup
Suppose you’re watching a crypto pair that just pushed to new highs. Traders are buzzing—but MFI is falling from 85 down to 60 while price still climbs.
That’s a red flag.
Volume isn’t supporting the move, and the index is showing a bearish divergence. Sure enough, price rolls over shortly after.
Alternatively, you may see a sharp price drop while MFI remains flat or begins rising. That’s a bullish divergence, and you prep for a bounce or reversal.
Pros and Cons of Using RSI
Pros
Adds volume to RSI-style momentum tracking
Useful for spotting divergences and exhaustion
Excellent for filtering weak trends or confirming strong ones
Works well in all market conditions
Cons
Can be noisy during low-volume sessions
May give false signals if used alone
Needs confirmation from structure or trend indicators
When to Use the MFI
Use the MFI when you want deeper momentum insight. While price alone can show movement, the MFI reveals whether that movement has volume strength behind it. It’s great for finding reversals that aren’t just fast—but real.
Whether you’re trading breakouts, pullbacks, or consolidations, the Money Flow Index helps you spot the moments where volume and momentum come together—or fall apart. Learn the Ease Of Movement (EOM) NEXT!!