The main purpose of using the MFI is that when the market hit these levels, it could indicate price reversal and traders should enter the market to try and capitalize on the momentum. Keep in mind that sometimes the price of an asset and the MFI may provide opposite signals. That is called divergence. Forex traders never have to manually calculate the money flow index since the online trading platforms do this for them.
Money Flow index Indicator
However, knowing how to do it might be of great help since it will help you understand what is this indicator actually telling you. First of all, you need to calculate the typical price. This is done by computing the average price of the high, low and closing price.
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- Money Flow Index: How To Use This Indicator - ?
- Money Flow Index (MFI);
After that, find the raw money flow by taking the typical price and multiplying it by the volume for that period. Next, you need to find out whether the calculated raw money flow for that period is positive or negative.
Indicators and Strategies
When the typical price for the period is higher than it was in the previous period, the money flow is positive and the other way around. Finally, once you have the money flow ratio you can calculate the Money Flow Index.
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MFI Indicator: Introduction to Money Flow Index
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