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Money Flow Index (MFI)

OVERVIEW

The Money Flow Index (MFI) is a volume-weighted momentum oscillator producing a bounded 0–100 reading by comparing the dollar value of buying pressure to selling pressure over a rolling lookback period. Developed by Gene Quong and Avrum Soudack, MFI incorporates volume into every bar's calculation, making it sensitive to both price direction and the conviction behind each move.

Note

MFI is often described as a volume-weighted RSI, but the underlying calculation differs structurally. RSI uses average gain and average loss of price changes; MFI uses the ratio of total dollar-volume on up-days to total dollar-volume on down-days.

HOW IT WORKS

Calculation Steps

Step 1 — Typical Price (TP)

TP = (High + Low + Close) / 3

Step 2 — Raw Money Flow

Raw Money Flow = TP × Volume

Step 3 — Classify each period

Condition Classification
TP > prior TP Positive Money Flow
TP < prior TP Negative Money Flow
TP = prior TP Excluded from calculation

Step 4 — Money Ratio (default 14-period lookback)

Money Ratio = Σ(Positive Money Flow, 14) / Σ(Negative Money Flow, 14)

Step 5 — MFI

MFI = 100 − [100 / (1 + Money Ratio)]

Standard Thresholds

Level Interpretation
Above 80 Overbought
Below 20 Oversold
Above 90 / Below 10 High-conviction signals on volatile instruments
Crossing 50 from below Breakout confirmation

Tip

Some practitioners use 90/10 thresholds instead of 80/20 when trading volatile instruments to filter for higher-conviction signals and reduce noise.

WORKED EXAMPLE

Over 14 trading sessions in February 2025, NVDA records the following:

Session Type Days Avg Typical Price Avg Volume Money Flow
Up-days 9 $875 45M shares $354.4B
Down-days 5 $860 38M shares $163.4B 
Money Ratio = 354.4 / 163.4 = 2.169
MFI = 100 − (100 / 3.169) = 68.4

A reading of 68.4 indicates bullish momentum but not yet overbought territory.

Note

If NVDA's price simultaneously made a new 3-week high while MFI reached only 65 — below its prior 14-period high of 72 — that bearish divergence flags weakening buying pressure behind the new price high, a higher-conviction signal than the raw MFI level alone.

SIGNAL TYPES

Divergence

Divergence is the highest-value MFI signal.

Divergence Type Price Action MFI Reading Implication
Bearish New high Lower high Weakening buying pressure behind new price extreme
Bullish New low Higher low Accumulation absorbing selling pressure

Overbought / Oversold Readings

Overbought and oversold readings flag potential exhaustion when combined with supporting factors.

  • MFI above 80 alongside parabolic price action and elevated Relative Volume strengthens the case for a reversal setup.
  • MFI below 20 at a recognized support level adds confluence to a mean-reversion long.

Note

Overbought is not a standalone sell signal. In strong trending markets, MFI can remain above 80 for extended periods. MFI extremes flag a condition to monitor, not a trigger to act.

Breakout Confirmation

A price breakout accompanied by MFI rising through 50 from below on above-average volume confirms the move has volume-backed conviction rather than being a low-participation false break.

COMPATIBLE INDICATORS

MFI pairs naturally with the following indicators for a multi-dimensional view of volume-price dynamics.

Indicator Relationship to MFI
On-Balance Volume (OBV) Complementary volume-direction measure
VWAP Volume-weighted price reference for context
Relative Volume Confirms whether MFI extremes occur on meaningful participation
RSI Price-only momentum comparison; divergence between RSI and MFI is itself informative

LIMITATIONS

Limitation Detail
Volume quality required Thinly traded stocks, penny stocks, and ETFs with erratic volume produce noisy, unreliable readings. MFI is most reliable on liquid instruments with consistent daily volume in the millions of shares.
Overbought ≠ sell signal MFI extremes flag a condition to monitor, not a standalone action trigger.
MFI ≠ RSI with volume The two calculations diverge frequently and can simultaneously be correct at different timeframes.
Lookback lag The default 14-period lookback lags intraday momentum shifts. Day traders routinely use 7-period MFI on 5-minute charts to shorten response time at the cost of increased noise.

Tip

For intraday trading, consider reducing the lookback period to 7 on 5-minute charts to improve responsiveness. Expect increased noise relative to the default 14-period setting.