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Money Flow Index (MFI)

The indicator Money Flow Index (better known as just MFI) is a tool of technical analysis, which shows the volumes of buying and selling of a specified financial instrument and refers to the group of oscillators. It was developed by an already existing indicator, the Relative Strength Index, and is included into the group of volume indicators. However, the money flow index also takes into account the volume of investments in contrast to the instrument, which lays in the basis of it. If you use the MetaTrader4 or MetaTrader5 trading platform, you will find MFI in the standard toolkit of technical analysis.

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In the heart of this instrument, like in any other, lies the mathematical formula and to understand the specifics of its work, we need to analyze this formula stage by stage:

  1. A typical price for this time interval is calculated;
  2. The amount of money flow is calculated.

These two formulas will give the trader the information about the positive and negative cash flow at the moment in comparison to the yesterdays. If the value of the first formula is greater than yesterday, the volume is positive and vice versa.

  1. Then the monetary ratio is calculated with the help of the positive and negative money flow values;
  2. Finally, the cash flow index is determined.

If you practice a lot, you can learn, how to calculate this index very quickly and even will be able to identify it by only looking at the graph. Any trader can start using this robot, even without having much knowledge of the financial sphere and lots of trading in the world market.

Trading with a money flow indicator

Before you start trading with MFI, you need to download it. Download the index of any version on the website MTDownloads for free at any time convenient for you. After downloading it, you need to install MFI, which will not take much of your time. This robot doesn’t have many parameters to configure, and it isn’t difficult to understand them.

Like any other indicator of volumes, first of all, MFI takes into account the difference between the price schedule and the indexes of the robot:

  • If the price chart goes up, and the robot's indexes fall - it is a signal of an early turn in the market;
  • If the price chart goes down, and the robot's indexes grow - it is a signal of an early shift in the market.

It is worth remembering, that the turn signal isn’t yet the exact entry point to the market, although it gives us a lot of information about the current situation in the market. For trading with the help of this instrument, it is better to choose long time frames, because the shorter the timeframe you choose, the higher will be the volatility of the market and it is the first and the primary cause of wrong signals and redraws of the graph. It is especially important to take this information into account if you are trading in the Forex currency market, where the volatility of the market is extremely high.

It will be easy for you to understand the work of this robot if you have already worked with such an indicator, as RSI, as they are very similar regarding the work and in the signals they provide.

The Money Flow Index is used primarily in two main cases:

  • To identify the divergence, which, in its turn, indicates the reversal of the trend. It is an excellent signal for selling or buying of an asset, but it isn’t a direct entry point;
  • To calculate the levels of overbought and oversold. If the indexes of the instrument have risen to the level of 80 or pierced it, then it tells us about the overbought in the market. If the indexes of the instrument fell to a level of 20 or lower, it gives the information about the oversold of an asset.

If you have just started your journey into the world market, there are universal tips for working with this technical assistant:

  • When the robot's indexes are above the level 80 and crosses it from the top to the bottom - you need to sell the asset;
  • When the robot's indexes are below the level 20 and cross it from the bottom to the top - you need to buy the asset.

These tips don’t take into account the fundamental analysis; the important world news represents it, but you have to follow them because they can change the market situation completely, and you will lose money, even following the mentioned above tips.

Like any other indicator, the money flow index can be perfectly combined with the other tools of technical analysis and will be an excellent addition to any trading strategy. Download MFI from the website MTDownloads for free, and today you will get the first profit with its help.