The Money Flow Index (MFI) is a technical indicator used to assess the flow of money in a stock by measuring both the price and volume of the stock over a specific period. The MFI combines price and volume data to generate a value that indicates the strength of money flowing in or out of the stock.
The MFI is calculated in four steps:
The MFI ranges from 0 to 100, where values above 80 indicate overbought conditions and potential selling opportunities, while values below 20 indicate oversold conditions and potential buying opportunities. Traders and investors use the MFI to identify potential trend reversals, confirm price trends, and generate buy or sell signals.
If the MFI is rising while the stock price is also rising, it suggests strong buying pressure. Conversely, if the MFI is falling while the stock price is rising, it indicates weakening buying pressure and potential selling opportunities.