MFI (Money Flow Index)

The Money Flow Index (MFI) is often called the volume-weighted RSI. It uses both price and volume data to measure buying and selling pressure, oscillating between 0 and 100. Readings above 80 indicate overbought conditions while below 20 indicates oversold, but with the added reliability of volume confirmation.

How MFI Is Used in Trading

MFI provides more reliable overbought and oversold signals than RSI because it incorporates volume. A high MFI reading means not only has price risen but significant volume has backed the move. When MFI reaches extreme levels without corresponding volume, it suggests the price move is unsustainable.

MFI divergence is a strong reversal signal. When price makes a new high but MFI makes a lower high, it indicates declining volume behind the move, often preceding a correction. This volume-price divergence typically leads price by several bars.

In forex, where true volume is not available, MFI uses tick volume as a proxy. While not identical to exchange volume, tick volume correlates highly with actual trading activity and provides useful relative comparisons across time periods.

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