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How to Use Money Flow Index (MFI) to Predict Price Trends

2025-11-07 09:27:09 | 浏览 51

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In precious metals trading, technical analysis tools can significantly enhance investors accuracy in judging market trends. The Money Flow Index (MFI) is a powerful technical indicator that combines price and volume factors. It not only helps identify buying and selling pressure but is also suitable for predicting potential market reversals and key entry points, enhancing profitability for investors 


Definition and Calculation of the MFI

The MFI is expressed as a numerical value between 1 and 100. An increasing value indicates rising buying pressure, while a decreasing value reflects growing selling pressure.


Although the logic of MFI is similar to Relative Strength Index (RSI), the main distinction lies in its inclusion of trading volume in the computation. MFI is calculated through the following steps: 


Step 1: Calculate the Typical Price 

Formula = (High + Low + Close) / 3


Step 2: Calculate Money Flow 

Formula = Typical Price x Volume 

If the current typical price is higher than that of the previous period, it is considered “positive money flow”. Otherwise, it is “negative money flow”.


Step 3: Calculate the Money Flow Ratio

Formula = 14-day total positive money flow / 14-day total negative money flow


Step 4: Calculate MFI

Formula = 100 - [100 / (1 + Money Flow Ratio)]


How to Interpret the Money Flow Index

Generally, an MFI value below 20 indicates oversold conditions–suggesting that prices may rebound and a buying opportunity might be forming. Conversely, an MFI above 80 signals overbought conditions, indicating a potential price pullback and offering a good opportunity to take profits.


Traders should also pay attention to divergences between price action and the MFI. For example, if a product’s price hits a new low but the MFI does not follow–or forms a higher low–this suggests weakening selling pressure and stronger buying momentum. Such divergence is often interpreted as a buying signal.

In the above chart, prices continue to rise within the circled area, but the MFI remains flat. Later, the price trend reverses and begins to decline.


Practical Tips for Using the Money Flow Index 

The MFI works best in sideways or volatile markets, where it can signal potential trend reversals ahead of time. However, the MFI should not be used as a standalone tool. Traders are advised to combine it with other indicators such as Moving Averages (MA), support and resistance levels, or Bollinger Bands to increase the accuracy of their analysis.