The Money Flow Index (MFI) is a popular technical indicator used in financial trading, particularly in the Forex market.
It is an oscillator that measures the flow of money into and out of a security over a specific period of time.
The MFI is calculated using both price and volume data to determine the buying and selling pressure of security.
The MFI is a momentum indicator that ranges from 0 to 100. The indicator is usually plotted as a line that oscillates between two horizontal lines at 20 and 80.
Traders typically use these lines as overbought and oversold levels.
If the MFI crosses above the overbought level of 80, traders may interpret it as a sign that the security is overvalued and due for a price correction.
Conversely, if the MFI crosses below the oversold level of 20, traders may interpret it as a sign that the security is undervalued and due for a price rebound.
The MFI is typically displayed as a line graph that oscillates above and below a centerline at 50.
The line graph is typically blue or another color that contrasts with the chart’s background.
Traders also use the MFI to identify potential trading opportunities, such as when the MFI line crosses above or below the 50 centerlines.
A cross above 50 may signal a bullish trend, while a cross below 50 may signal a bearish trend.
- The oversold level of 20 is once again crossed by the MFI line.
- At 50, the MFI line ascends over the centerline.
- As the price is in a downturn, the MFI line is rising.
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- MFI line returns to crossing below the 80 overbought levels.
- At 50, the MFI line deviates from the centerline.
- While the price is rising, the MFI line falls lower.