What is the Money Flow Index? Definition, Formula, and Example
The Money Flow Index (MFI) is a volume-weighted momentum oscillator ranging from 0 to 100 that measures the ratio of positive to negative money flow over a 14-period lookback, combining price direction and trading volume into a single bounded indicator often called the volume-weighted RSI.
What Is the Money Flow Index?
The Money Flow Index (MFI) is a volume-weighted momentum oscillator that produces a bounded 0–100 reading by comparing the dollar value of buying pressure to selling pressure over a rolling lookback period. Developed by Gene Quong and Avrum Soudack, MFI incorporates volume into every bar's calculation, making it sensitive to both price direction and the conviction behind each move. It is often described as a volume-weighted RSI, though the underlying calculation differs structurally from RSI.
How It's Calculated
Step 1 — Typical Price (TP):
TP = (High + Low + Close) / 3
Step 2 — Raw Money Flow:
Raw Money Flow = TP × Volume
Step 3 — Classify each period:
- If TP > prior TP: Positive Money Flow
- If TP < prior TP: Negative Money Flow
- If TP = prior TP: excluded from the calculation
Step 4 — Sum over the lookback (default 14 periods):
Money Ratio = Σ(Positive Money Flow, 14) / Σ(Negative Money Flow, 14)
Step 5 — MFI:
MFI = 100 − [100 / (1 + Money Ratio)]
Standard thresholds: overbought above 80, oversold below 20. Some practitioners use 90/10 for higher-conviction signals in volatile instruments.
Worked Example
Over 14 trading sessions in February 2025, NVDA records the following:
- 9 up-days: average Typical Price = $875, average volume = 45M shares
→ Positive Money Flow = 9 × $875 × 45,000,000 = $354.4B
- 5 down-days: average Typical Price = $860, average volume = 38M shares
→ Negative Money Flow = 5 × $860 × 38,000,000 = $163.4B
Money Ratio = 354.4 / 163.4 = 2.169
MFI = 100 − (100 / 3.169) = 100 − 31.6 = 68.4
A reading of 68.4 indicates bullish momentum but not yet overbought territory. If NVDA's price simultaneously made a new 3-week high while MFI reached only 65 — below its prior 14-period high of 72 — that bearish divergence would flag weakening buying pressure behind the new price high, a higher-conviction signal than the raw MFI level alone.
When Traders Use It
Divergence is the highest-value MFI signal. Bearish divergence — price at a new high while MFI prints a lower high — indicates the new price extreme is being made on weaker volume-weighted buying than the prior high. Bullish divergence — price at a new low while MFI prints a higher low — signals accumulation absorbing the selling pressure.
Overbought/oversold readings flag potential exhaustion when combined with other factors. MFI above 80 in a stock showing parabolic price action alongside elevated Relative Volume strengthens the case for a reversal setup. MFI below 20 at a recognized support level adds confluence to a mean-reversion long.
Breakout confirmation: A price breakout accompanied by MFI rising through 50 from below on above-average volume confirms that the move has volume-backed conviction rather than being a low-participation false break.
MFI pairs naturally with On-Balance Volume and VWAP for a multi-dimensional view of volume-price dynamics.
Limitations and Common Misconceptions
Volume quality is a prerequisite. In thinly traded stocks, penny stocks, or ETFs with erratic daily volume, Raw Money Flow spikes on anomalous sessions produce noisy, unreliable MFI readings. MFI is most reliable on liquid instruments with consistent daily volume in the millions of shares.
Overbought is not a sell signal. In strong trending markets, MFI can remain above 80 for extended periods — using 80 as a standalone exit rule produces premature sales in trend-following environments. MFI extremes flag a condition to monitor, not a trigger to act.
MFI is not RSI with volume added. RSI uses the average gain and average loss of price changes; MFI uses the ratio of total dollar-volume on up-days to total dollar-volume on down-days. The two calculations diverge frequently, and both can be simultaneously correct at different timeframes.
The default 14-period lookback lags intraday momentum shifts. Day traders routinely use 7-period MFI on 5-minute charts to shorten response time at the cost of increased noise.