The MFI is a great indicator for many reasons! To learn what it does and how to use it read our full article.
How to use the Money Flow Index (MFI) Indicator
The money flow index is a technical indicator that is an oscillator, using both price and volume to measure buying and selling pressure. Similarly to the RSI, the MFI can be used to identify ‘overbought’ and ‘oversold’ levels as well as divergence.
Overbought and Oversold Levels on the MFI
The ‘oversold’ level on the MFI is below 20%, and the ‘overbought’ is above 80%. As with all indicators these signals are not 100% accurate, and it is advisable to pair the MFI with other indicators and analysis. Below you can see an example of the MFI on the daily chart, with “overbought” and “oversold” levels identified.
Divergence with the MFI
Another effective strategy using the MFI is using it to identify divergence. Effectively what this means is that price is going in one direction and the indicator is going in the other direction.
Example one: Price sets a fresh high, higher than the previous high, however the new high on the MFI is lower than the previous one. This is called bearish divergence, and is a signal for a bearish trend.
Example two: Price is trending down and sets a fresh low, lower than the previous low, but the MFI prints a new low higher than the previous one. This is called bullish divergence, and signals a bullish trend.
We recommend conducting your own research of the MFI and using it on a demo account before trading a live account.