MFI is a momentum indicator combining price and volume, known as "volume-weighted RSI". MFI measures buying and selling pressure by analyzing money flow, ranging from 0-100, identifying overbought/oversold conditions and potential trend reversals.
Typical Price = (High + Low + Close) / 3 Money Flow = Typical Price × Volume If today's typical price > yesterday's: Positive Money Flow = Today's money flow If today's typical price < yesterday's: Negative Money Flow = Today's money flow Money Flow Ratio = Sum of N-period positive money flow / Sum of N-period negative money flow MFI = 100 - [100 / (1 + Money Flow Ratio)] Standard period: N = 14
Standard MFI (14 periods): Most commonly used
Short-term MFI (7-10 periods): More sensitive, suitable for short-term trading
Long-term MFI (20-25 periods): Smoother, reduces false signals
MFI Divergence: Price and MFI move in opposite directions, signals trend reversal
MFI > 80: Overbought zone, excessive money inflow, possible pullback
MFI < 20: Oversold zone, excessive money outflow, possible bounce
MFI Crosses Above 80: Strong uptrend, but beware overbought
MFI Crosses Below 20: Strong downtrend, but beware oversold
MFI Falls from Overbought: Sell signal
MFI Rises from Oversold: Buy signal
Bearish Divergence: Price makes new high but MFI doesn't, signals weakening money inflow
Bullish Divergence: Price makes new low but MFI doesn't, signals weakening money outflow
MFI Failure Swing: MFI fails to break previous high or low, signals trend reversal
MFI combines price and volume information, more comprehensive than pure price indicators. In uptrends, MFI should stay above 50; if MFI falls below 50, may signal weakening trend. MFI divergence is powerful reversal signal, especially when occurring near key support/resistance. Many traders combine MFI with RSI; when both show overbought or oversold, signal is more reliable. MFI can also confirm breakout validity: breakouts with volume support are more reliable.
Combines price and volume analysis, identifies overbought/oversold conditions, strong divergence prediction capability, can confirm breakout validity, provides more information than RSI
Not applicable to forex markets (no centralized volume data), unreliable in low volume markets, prone to false signals, requires combination with other indicators
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