Money Flow Index (abbreviated as MFI) is an indicator that the meaning and the calculation is similar to the "relative strength" - ( RSI ). But its main difference is that in the calculation of "money flow index" uses the volumes (in the forex market, it uses tick volume). Many traders believe that this indicator is more stable in the testimony than its predecessor, and it can accurately show how the instrument is currently investing, which then drives the price chart.
Money flow index compares the positive and negative cash flows. In consequence of which we have an indicator that when comparing the price can determine the strength of the trend.
Calculation of this indicator is still quite simple and consists of a two formulas.
Formula number 1. To calculate the indicator values, we need to know the typical price. Its formula is shown in the photo and is calculated as the arithmetic average of the minimum, maximum and closing price.
Formula number 2. Second formula is the final, after which we awake to know the exact value of the indicator. The formula - MFI equal multiplication typical price (we found) and volume of the current price.
But this is not the final action. Further indicator calculates the positive and negative values, and feeds them to the values from 0 to 100.
Description of indicator
Money flow index refers to the type of oscillators. He is from the line of the indicator and scale, with values ranging from 0 to 100. When you configure the display can change the thickness and color of the line and change the period. But remember that the smaller the period, the indicator wakes volatility.
Of the indicator
Many traders have found many ways to use and signals for this indicator. But as the money flow index RSI delivers two types of basic signals, this divergence and trade from oversold and overbought.
Divergence. Differences between movements chart and indicator lines in one period is called divergence . It can be defined by the local minima and maxima. The presence of divergence indicates the imminent reversal of the trend movement. Signals for the divergence we have talked a lot and frequently mentioned, so it we shall not stop. Only it should be noted that the divergence between the indicator and the MFI price chart may be a long time. This is due to resistance indicator.
Overbought and oversold levels. For this indicator, it is best to set the level of overbought at around 80 and oversold at around 20. These actions will filter out false signals. When the line indicator reaches overbought levels, it is necessary to open a sell order after the turn line. Open position to buy should be in opposite direction indicator.
Money flow index is a useful indicator, which is superior to other oscillators - is durability. For greater accuracy, the indicator signals can be used in tandem with other oscillators, such as the same RSI .
Many novice traders are confused indicator Money Flow Index (MFI) with indicator Chaikin Money Flow Indicator (CMFI or Chaikin Oscillator ). Be careful, because they are two different indicator.