Money Flow Index (MFI)

A volume-weighted momentum oscillator bounded between 0 and 100.

What it is

The Money Flow Index (MFI) is a momentum oscillator that combines price and volume to gauge buying and selling pressure over a chosen lookback period. It is often described as a "volume-weighted RSI" because it shares RSI's bounded 0-100 scale but factors trading volume into its calculation rather than relying on price alone. The default period is 14. Like all indicators, MFI is descriptive, not predictive: it summarizes past price and volume and does not forecast future prices. All trading carries the risk of loss.

How it works

For each bar, MFI starts from the typical price ((high + low + close) divided by 3) and multiplies it by that bar's volume to get "raw money flow." When the typical price is higher than the previous bar's, that money flow is counted as positive; when it is lower, it is counted as negative. Over the lookback window (default 14 bars), the indicator sums the positive flows and the negative flows, forms a money-flow ratio between them, and converts that ratio into a value from 0 to 100. Because volume is part of the math, the same price move on heavy volume moves MFI more than the same move on light volume.

How traders read it

• Traders often treat readings above 80 as a possible overbought condition and below 20 as a possible oversold condition, though these are zones for context, not triggers to act on.
• Some traders watch for divergence: price making a new high (or low) while MFI fails to confirm is sometimes read as a sign the move may lack volume-backed conviction.
• Because volume is built in, a strong MFI move is sometimes interpreted as price action being supported by participation, while a weak one is read as thin involvement.
• The midline near 50 is sometimes used as a rough reference for whether money flow has been net positive or negative over the window.
• Adjusting the lookback (shorter = more sensitive and noisier, longer = smoother and slower) changes how often the extremes are reached.
• No indicator is predictive; MFI describes past price and volume only, and all trading carries the risk of loss.

Common settings

Default length is 14. Overbought/oversold reference lines are commonly drawn at 80/20 (some traders use 90/10 for stricter extremes), with 50 as an optional midline. Shorter lengths (e.g. 7-10) increase sensitivity; longer lengths (e.g. 21+) smooth the line. These are conventions for context, not settings that improve outcomes.

Strengths

• Combines price and volume in a single bounded reading, unlike price-only oscillators such as RSI.
• Easy to read on a fixed 0-100 scale with widely understood reference zones.
• Volume weighting can help distinguish moves backed by participation from thin ones.
• Available as a built-in (ta.mfi) in Pine v6, so it is simple to add and customize.

Pitfalls to watch

• Overbought/oversold readings can persist for a long time in a strong trend; an extreme value does not mean a reversal is due.
• MFI depends on reliable volume data. On instruments with poor or tick-based volume (such as some spot forex feeds), the volume input may be unrepresentative and distort the reading.
• Divergence can appear repeatedly and fail; price can keep trending while the oscillator diverges.
• Like most oscillators, MFI is calculated over a window of past bars, so it reacts after moves rather than ahead of them.
• Shortening the period to chase responsiveness tends to increase false extremes and whipsaw noise.

Pine v6 example

//@version=6
indicator("Money Flow Index", shorttitle="MFI")

length = input.int(14, "Length", minval=1)

// ta.mfi(series, length): standard MFI passes the typical price (hlc3)
mfi = ta.mfi(hlc3, length)

plot(mfi, "MFI", color=color.blue)
hline(80, "Overbought", color=color.gray, linestyle=hline.style_dashed)
hline(20, "Oversold", color=color.gray, linestyle=hline.style_dashed)
hline(50, "Midline", color=color.new(color.gray, 60))

Pro tip: Because MFI relies on volume, sanity-check the volume feed for your instrument before reading it. On markets with weak or synthetic volume data the indicator can mislead, so confirm what your data source actually reports rather than assuming the reading reflects real participation.

Educational only — not financial advice, not a recommendation to trade. No indicator is predictive; trading involves substantial risk of loss.