The indicator is displayed in a separate window under the price chart and looks like a histogram made of bars of four different colors. The color and width of the bars are customizable.

By default, the colors are as follows:. Usually, it is up to the trader whether to place highs and lows — normally, they are not used in trading by the MFI. The indicator has no other settings. Volume is the tick volume of trade the number of ticks in the calculation period. Unlike normal trade volume, there might be many more ticks in the bar, which makes the result differ from the real volumes. Though the MFI gives certain information to the trader, the author advises against trading by this indicator only.

It should be used alongside other indicators or some trading strategy. This strategy is rather simple and requires no special knowledge. It is based on two indicators: the MA and the MFI. The color and width of the lines are irrelevant. Then add the MFI and set the width and color if necessary but better leave them by default. Enter the trade when the price crosses the MA. Choose your timeframe based on the time you have and your money management rules. At the top of an uptrend with the price renewing the highs wait for the quotations to cross the SMA25 top-down; it will be perfect if there is a clear support or resistance level nearby — we will use it later.

Then the price crosses the MA top-down, the candlestick closes, and a pink bar forms on the MFI. Place a pending Sell Stop at the support level below the closed candlestick and the Stop Loss — to the nearest high.

Close your position with a profit when the price crosses the MA from below. Alternatively, place a Take Profit times larger than the SL. As with selling, choose a timeframe for comfortable trading based on your money management rules.

At the bottom of a downtrend, when the price renews the lows, wait for the candlestick to cross the MA from below. Moreover, we would like to see a support or resistance level nearby.

Then the price crosses the MA and closes above it, while the MFI forms a pink bar. Place a pending Buy Stop at the resistance level above the closed candlestick and a Stop Loss — at the nearest low.

Close the trade with a profit when the price crosses the MA top-down or place a TP times larger than the SL. No doubt this strategy has its strong and weak sides. To trade successfully, choose your instrument and timeframe well. The settings of the SMA25 are customizable.

The timeframe is M5; choose your currency pair from the majors with a small spread. Keep in mind that a scalping strategy requires from the trader fast decisions, good reaction, and cold calculation. The SL and TP must be placed momentarily, or avoid them altogether, closing your positions manually and without compunction. Otherwise, a scalper that was too greedy to close a trade with a small loss might turn into a long-term investor, trying to survive drawdowns.

To the chart with the Mfi, add the Volumes indicator with basic settings. Wait for the market price to leap, i. create a large ascending candlestick. On the MFI, there will be a green bar, as well as on the Volumes indicator.

Wait for the candlestick to close and open a buying position at the opening of the next bar. Place an SL 20 points below and a TP — 20 points above the open positions. You may do without protective orders but close the position as soon as the price reaches some previously set level. Wait for the quotations to fall abruptly; the two indicators will form green bars. After the control bar closes, open a selling position. Or place no such orders, monitor the position, and close it manually.

Though the MFI describes certain market states, it must be used alongside others. Before starting to use it, practice on a demo account and assess the statistics of profitable trades.

Has been in Forex since , also trades in the stock market. Regularly participates in RoboForex webinars meant for clients with any level of experience. This week could be a relatively quiet one for the currencies, but it is worth keeping an eye on oil prices and the rhetoric of the Fed officials. The IPO of KWESST Micro System Inc. will take place on 18 November on the NASDAQ exchange. The company develops "dual-use" technologies and products that are used by emergency services and the military.

A closer look at KWESST Micro System's business and financial position. The Fed's opinion on future interest rate decisions is pretty much the only thing of interest to the capital markets currently. The US dollar is continuingto fall, which is drawing a lot of attention. In this review we will get acquainted with the popular harmonic pattern "Bat". We will learn how to find it on the price chart and what trading signals it gives. We will consider the rules and examples of its formation.

Here's why Meta Platforms Inc. We explain why Mark Zuckerberg needs the metaverse. We analyse the prospects and risks of investing in Meta Platforms Inc. This week is not overloaded with reports - more of the focus will be on political news.

It will be interesting to see how China shapes its strategy to combat COVID Learn how to combine 38 moving averages for fast scalping on 1-minute charts. We cover position management rules and options for setting Stop Loss and Take Profit. The IPO of Mobileye Global Inc. took place on the 26th of October on the NASDAQ exchange. The company develops and manufactures in-car driver assistance systems. Conventional trading wisdom contends that there is an increased chance of a reversal when the market is overbought or oversold.

As well as being used to identify overbought and oversold conditions, the MFI indicator can also be used to spot divergences, which warn of a potential reversal. For example, if the price is recording higher highs but the MFI indicator is moving lower, a bearish divergence is taking place and this may be used as a sell signal. Conversely, if the price were making lower lows but the MFI was moving higher a bullish divergence would be taking place, which may be viewed as a buy signal.

The MFI technical indicator can also be used alongside other indicators to create a Money Flow Index strategy. An example of this is by combining the MFI indicator with a moving average and using the crossovers as trading signals. In the chart above, you will note that we have also added an additional level of 50 within the MFI indicator, alongside the pre-existing 20 and 80 levels.

For this MFI trading strategy, a long position is taken if the MFI indicator crosses above its moving average whilst below the 50 level. On the other hand, if the MFI indicator crosses below its moving average whilst also above 50, a short position is initiated. The chart below is the same as the one above. However, we have highlighted the trading signals which would have been generated by this MFI trading strategy.

Two buy signals are highlighted in green, whilst three sell signals are highlighted in red. It's worth bearing in mind that no indicator is right all the time and, as such, an MFI trading strategy such as this will produce many false trading signals. This is why many traders employ more than one indicator in combination, to try and improve their strategy and filter out some of the false signals. As we have seen, the MFI indicator is a useful tool for identifying potential reversals by demonstrating overbought and oversold conditions as well as detecting divergence.

The Money Flow Index indicator can be an effective part of a trading strategy when used in conjunction with other technical indicators. The best way for you to experiment what combination of indicators works best for you is by experimenting on a risk-free demo trading account. A risk-free demo account is the perfect place to practise your MFI trading strategy without risking your money!

Perfect your Money Flow Index strategy in real-market conditions using virtual currency before you head for the live markets. Click the banner below to open your free demo trading account today:. Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8, financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5.

Start trading today! This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks. Help center Contact us. Start Trading. Trading Tools MetaTrader Supreme Edition StereoTrader Top! Virtual Private Server Parallels for MAC.

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Top search terms: Create an account, Mobile application, Invest account, Web trader platform. How to Trade with the Money Flow Index Indicator Admirals Sep 15, 9 Min read. Table of Contents What Is the Money Flow Index Indicator?

The Money Flow Index Calculation How to Use the MFI Indicator in MetaTrader 5 How to Read the MFI Indicator Money Flow Index Strategy Final Thoughts. Trade with a risk-free demo account Practise trading with virtual funds OPEN DEMO ACCOUNT. An all-in-one solution for spending, investing, and managing your money.

The Money Flow Index MFI is a technical oscillator that uses price and volume data for identifying overbought or oversold signals in an asset. It can also be used to spot divergences which warn of a trend change in price.

The oscillator moves between 0 and Unlike conventional oscillators such as the Relative Strength Index RSI , the Money Flow Index incorporates both price and volume data, as opposed to just price.

For this reason, some analysts call MFI the volume-weighted RSI. When the price advances from one period to the next Raw Money Flow is positive and it is added to Positive Money Flow. When Raw Money Flow is negative because the price dropped that period, it is added to Negative Money Flow. There are several steps for calculating the Money Flow Index.

If doing it by hand, using a spreadsheet is recommended. One of the primary ways to use the Money Flow Index is when there is a divergence. A divergence is when the oscillator is moving in the opposite direction of price. This is a signal of a potential reversal in the prevailing price trend. For example, a very high Money Flow Index that begins to fall below a reading of 80 while the underlying security continues to climb is a price reversal signal to the downside.

Conversely, a very low MFI reading that climbs above a reading of 20 while the underlying security continues to sell off is a price reversal signal to the upside. Traders also watch for larger divergences using multiple waves in the price and MFI.

This could foreshadow a decline in price. The overbought and oversold levels are also used to signal possible trading opportunities. Moves below 10 and above 90 are rare. Traders watch for the MFI to move back above 10 to signal a long trade, and to drop below 90 to signal a short trade.

Other moves out of overbought or oversold territory can also be useful. For example, when an asset is in an uptrend , a drop below 20 or even 30 and then a rally back above it could indicate a pullback is over and the price uptrend is resuming. The same goes for a downtrend. A short-term rally could push the MFI up to 70 or 80, but when it drops back below that could be the time to enter a short trade in preparation for another drop.

The MFI and RSI are very closely related. The main difference is that MFI incorporates volume, while the RSI does not. Proponents of volume analysis believe it is a leading indicator. Therefore, they also believe that MFI will provide signals, and warn of possible reversals, in a more timely fashion than the RSI.

One indicator is not better than the other, they are simply incorporating different elements and will, therefore, provide signals at different times. The MFI is capable of producing false signals. This is when the indicator does something that indicates a good trading opportunity is present, but then the price doesn't move as expected resulting in a losing trade. A divergence may not result in a price reversal, for instance.

The indicator may also fail to warn of something important. For example, while a divergence may result in a price reversing some of the time, divergence won't be present for all price reversals. Because of this, it is recommended that traders use other forms of analysis and risk control and not rely exclusively on one indicator. Technical Analysis. Advanced Technical Analysis Concepts. Technical Analysis Basic Education.

Company News Markets News Cryptocurrency News Personal Finance News Economic News Government News. Your Money. Personal Finance. Your Practice. Popular Courses. Technical Analysis Technical Analysis Basic Education. What Is the Money Flow Index MFI? Key Takeaways The Money Flow Index MFI is a technical indicator that generates overbought or oversold signals using both prices and volume data. An MFI reading above 80 is considered overbought and an MFI reading below 20 is considered oversold, although levels of 90 and 10 are also used as thresholds.

A divergence between the indicator and price is noteworthy. For example, if the indicator is rising while the price is falling or flat, the price could start rising.

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This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Part Of. Related Terms. What Is the Force Index? The force index is a technical indicator that uses price and volume to determine the power behind a price move and identifies turning points.

Relative Strength Index RSI Indicator Explained With Formula The Relative Strength Index RSI is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions. Money Flow Money flow is calculated by averaging the high, low and closing prices, and multiplying by the daily volume. What Is the Commodity Channel Index CCI? How To Calculate The Commodity Channel Index CCI is a technical indicator that measures the difference between the current price and the historical average price.

Partner Links. Related Articles. Technical Analysis 7 Technical Indicators to Build a Trading Toolkit. Technical Analysis Basic Education How the Money Flow Index and Relative Strength Index Differ. Technical Analysis Basic Education The Difference Between Chaikin Money Flow and Money Flow Index? Technical Analysis Basic Education RSI Indicator: Buy and Sell Signals.

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As well as being used to identify overbought and oversold conditions, the MFI indicator can also be used to spot divergences, which warn of a potential reversal. Let's go. The timeframe is M5; choose your currency pair from the majors with a small spread. Es por eso que muchos traders emplean más de un indicador en combinación, para mejorar el rendimiento y ayudar a reducir el número de señales falsas. También hemos añadido una línea central editando el indicador MFI MT4.

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