Money Flow Index

Type

Volume/Momentum Indicator - Compares Closing Price, Range and Volume

How does it work?

The Money Flow Index measures the strength of money flowing in and out of a security. The indicator compares the value traded on up-days to value traded on down-days. 

It is related to the Relative Strength Index, but where the RSI only incorporates prices, the Money Flow Index accounts for volume.

Trading Signals

1.      Look for market tops to occur when the indicator is above 80. Look for market bottoms to occur when the indicator is below 20

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

3.      Look for divergences between the indicator and the price action. If the price trends higher and the indicator trends lower, a reversal may be imminent (and vice versa)

Settings

Sharechart Default:  20 periods

Example

The daily chart below is of Cento Properties Group. Note that using the Money flow indicator you can determine overbought and oversold areas, breaks and divergences. If money is flowing in then share price should rise, if money is flowing out then share price should fall. In September, the Money Flow Index was in oversold territory and then proceeds to form a bullish divergence (money flowing in while share price came down), the share price then rose.

The setting for the Money Flow Index for the graph above was 13, as shown below. It can be modified by going to Settings > Indicators > Money Flow Index.