Money Flow Index (MFI): Volume-Weighted RSI

RSI measures momentum. MFI measures momentum with volume — and volume is what separates real moves from fake ones.

The Money Flow Index (MFI), developed by Gene Quong and Avrum Soudack, is often called the "volume-weighted RSI." Like RSI, it ranges from 0 to 100 and uses 80/20 overbought-oversold levels. Unlike RSI, it incorporates volume — so a price move on thin volume counts for less.

The formula

Typical Price (TP) = (High + Low + Close) / 3
Money Flow = TP × Volume

If TP today > TP yesterday:  Positive Money Flow  (add to sum)
If TP today < TP yesterday:  Negative Money Flow (add to sum)

Money Flow Ratio = (14-period sum of Positive MF) / (14-period sum of Negative MF)

MFI = 100 − [100 / (1 + Money Flow Ratio)]

Worked example — over 14 periods:

Value	Number
Sum of positive money flow	12,000
Sum of negative money flow	8,000
Money Flow Ratio	12,000 / 8,000 = 1.5
MFI	100 − [100 / (1 + 1.5)] = 100 − 40 = 60

Sound familiar? The final step is identical to RSI — only the input is volume-weighted.

MFI vs RSI

Feature	RSI	MFI
Input	Price only	Price + volume
Default period	14	14
Overbought	70	80
Oversold	30	20
Best for	Trends	Catching volume-driven moves

The 80/20 thresholds are stricter than RSI's 70/30 because MFI is more sensitive — volume spikes can push it to extremes RSI never reaches.

What MFI tells you

MFI reading	Meaning
Above 80	Overbought — heavy buying, possible exhaustion
Below 20	Oversold — heavy selling, possible bounce
Rising with price	Healthy uptrend — volume confirms
Falling while price rises	Bearish divergence — distribution
Rising while price falls	Bullish divergence — accumulation

The power of MFI divergence

Because MFI includes volume, its divergence is often more reliable than RSI's:

• Bearish divergence — price makes a higher high, but MFI makes a lower high → institutions distributing on the rally
• Bullish divergence — price makes a lower low, but MFI makes a higher low → institutions accumulating on the dip

When RSI divergence and MFI divergence both fire, the signal is strong.

How to trade it

1. Trend filter first — only buy oversold signals in an uptrend (200 SMA)
2. Wait for the extreme — MFI > 80 or < 20
3. Confirm with price action — a candlestick reversal at the extreme
4. Watch divergence — disagreement between price and MFI is the strongest signal
5. Use volume to confirm breakouts — MFI rising on a breakout = real conviction

Common mistakes

1. Auto-selling at 80 / buying at 20 — MFI can stay extreme in strong trends
2. Using it without a trend filter — fades fail against strong trends
3. Low-timeframe noise — MFI on a 1-minute chart is unreliable
4. Ignoring volume context — the whole point of MFI is the volume input; pair it with volume analysis

How to start

1. Add the 14 MFI to a daily chart
2. Mark the 80 / 20 levels
3. Add the 200 SMA as a trend filter
4. Only take mean-reversion signals in the trend's direction
5. Always pre-set risk with the stop loss calculator and size with the position size calculator

Summary

MFI is RSI with the volume truth serum injected. It catches accumulation and distribution that price-only indicators miss. Use its 80/20 extremes and its divergence with price as a higher-conviction momentum tool — and let volume confirm what price alone cannot.