Money Flow Index

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.

Trending Market

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 bands at 2.0 standard deviations around a 20 day exponential moving average and    20 day Money Flow Index.

Money Flow Index Example

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)