Description:
The Money Flow Index (MFI) is a technical oscillator designed by Quong and Avrum Soudack to identify overbought or oversold signals in an asset using price and volume data.
Input Parameters:
- Length: Number of periods used in the calculation.
- Upper: Presets to 80 which represents the upper boundary of the indicator.
- Lower: Presets to 20 which represents the lower boundary of the indicator.
Use Cases:
- Overbought/Oversold: MFI readings above 80 (or 90) indicate overbought conditions, suggesting that the asset may be overvalued and due for a price correction. Conversely, readings below 20 (or 10) signal oversold conditions, implying that the asset may be undervalued and poised for a price rebound.
- Divergences: Divergences between the MFI and the asset’s price can signal potential trend reversals. For instance, if the MFI is rising while the price is falling or flat, the price could start to increase. Conversely, if the MFI is dropping while the price is rising or flat, the price could decline.
- Confirming Trends: MFI can also be used to confirm existing trends. When the MFI is above 50, it suggests that the prevailing trend is bullish, as there is more positive money flow than negative money flow. Conversely, the trend is bearish when the MFI is below 50, with more negative than positive money flow. Traders can use these readings to enter or exit positions in the direction of the prevailing trend.
This feature can be used in:
- Market Scanner
- Strategy Tester
- Multi-Factor Alerts
- Smart Checklist
Do you want to learn more? Check out our Learning Center Article.