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Money Flow Index

A momentum oscillator that measures the strength of money flowing in and out of a financial instrument. It combines both price and volume to spot overbought and oversold market conditions. The Money Flow Index can also be used to anticipate reversals by observing the divergence between the price and the technical indicator. The Money Flow is calculated as the product of the typical price multiplied by the volume of the corresponding session. When the current session's Money Flow is greater than the previous then Positive Money is in place. Negative Money is considered in place when the current session's Money Flow is less than the previous. Subsequently, the Positive Money Flow is calculated as the ratio of the Positive Money over the Negative Money for a number of sessions. Similarly, the Negative Money Flow is calculated as the ratio of the Negative Money over the Positive Money over a number of sessions. Additionally, the Money Ratio is computed as Positive Money Flow over the Negative Money Flow. Finally, the Money Flow Index is calculated as MFI=100/ (1 + Money Ratio). A reading above 80 warns for market tops whereas a reading below 20 alerts for market bottoms.

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