What is Money Flow Index ? The Money Flow Index (MFI) is a te | Real Chris Pulver

What is Money Flow Index ?

The Money Flow Index (MFI) is a technical indicator that helps measure the strength and intensity of money flowing in and out of a security. It's commonly used to identify potential trend reversals and overbought or oversold conditions in a market.

Here's a simplified explanation of how the Money Flow Index works:

1. Typical Price (TP): Calculate the typical price for each period, which is the average of the high, low, and closing prices.

2. Raw Money Flow (RMF): Multiply the typical price by the corresponding period's volume to get the raw money flow.

3. Money Flow Ratio (MFR): Compare the total money flowing in on days when prices go up (Positive Money Flow) to the total money flowing in on days when prices go down (Negative Money Flow). Calculate the ratio.

4. Money Flow Index (MFI): Use the MFR to calculate the Money Flow Index. The MFI is a value between 0 and 100, indicating the intensity of money flow. Higher values suggest overbought conditions, and lower values suggest oversold conditions.

In simpler terms, the Money Flow Index helps traders assess whether a security is likely overbought or oversold, giving them insights into potential price reversals.