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Money Flow Index - MFI

Money Flow Index (MFI) is a technical indicator that displays how many investments are allocated to certain shares. This indicator is similar to Relative Strength Index. However, MFI also takes into account a volume.

When analyzing Money Flow Index, analysts recommend you to consider a divergence between the indicator and price movement. If prices are on the rise and the indicator drops, a reversal is expected in the near future. Please be aware that if Money Flow Index exceeds 80 or falls below 20, it indicates the market is approaching a potential top or bottom.

Calculation

The calculation of Money Flow Index includes several stages. First, one should define the typical price (TP) of the period.

TP = (HIGH + LOW + CLOSE)/3

Then one calculates the amount of the Money Flow (MF):

MF = TP * VOLUME

If today's typical price is larger than yesterday's TP, then the money flow is considered positive. If today's typical price is lower than that of yesterday, the money flow is considered negative.

A positive money flow is a sum of positive money flows for a selected period of time. A negative money flow is the sum of negative money flows for a selected period of time.

Then one calculates the money ratio (MR) by dividing the positive money flow by the negative money flow:

MR = Positive Money Flow (PMF)/Negative Money Flow (NMF)

And finally, one calculates the money flow index using the money ratio:

MFI = 100 - (100 / (1 + MR))

where

HIGH - current bar high;

LOW - current bar low;

CLOSE - current bar closing price;

VOLUME - current bar volume.

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