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Indicator Guide > Money Flow > Money Flow Index
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Education > Money Flow > Money Flow Index

Money Flow

The Money Flow Index is a volume-weighted version of the Relative Strength Index, used to warn of trend weakness and likely reversal points. The indicator compares the value traded on up-days to value traded on down-days.

Trading Signals

Ranging Market

Ranging markets can be identified by Money Flow Index fluctuating close to the 50 level.

Market tops are likely when a medium term Money Flow Index is above 80.

Market bottoms are likely when a medium term Money Flow Index is below 20.

Only trade with the trend and exit using a trend indicator.

Example

Microsoft Corporation plotted with Bollinger BandsBollinger bands at 2.0 standard deviations around a 20 day exponential moving average and Money Flow Index 20 day Money Flow Index.

Microsoft Bollinger Bands and Money Flow Index

Mouse over chart captions to display trading signals.

Exit using the moving average - this example uses MA direction as a filter. Compare this to the results if a single close or 2 closes are used as a filter.

  1. Go long [L] on a bullish divergence. Exit when the moving average turns down at [X].

Setup

The default Money Flow Index window is 14 days. Overbought/oversold are set at 80% and 20% levels. To alter the default settings - Edit Indicator Settings.

See Indicator Panel for directions on how to set up an indicator.

Formula

  1. Calculate Typical Price for each period:
               (High + Low + Close) / 3

  2. Calculate Money Flow for each period:
               Typical Price * Volume

  3. Decide on the time frame over which to calculate the index. This should be based on the cycle  that you are trading.

  4. Calculate Positive Money Flow:
               Add Money Flow for each period (in the time frame) that Typical Price moves up.

  5. Calculate Negative Money Flow:
               Add Money Flow for each period (in the time frame) that Typical Price moves down.

  6. Calculate the Money Ratio:
               Positive Money Flow / Negative Money Flow

  7. Calculate the Money Flow Index:
               100 - 100 / (1+ Money Ratio)


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