Reblog: 3 Simple Money Flow Index Trading Strategies
If you have been day trading with price action and volume – two of our favourite tools – then the Money Flow Index (MFI) indicator would not feel alien to you. Once you move pass the fancy name, the money flow technical indicator essentially acts as a momentum oscillator that calculates the volume and price data in order to measure buying and selling pressure.
By calculating the indexed value based on the stock price and volume of the number of bars specified in the money flow index settings, it plots a line on the chart that oscillates between the 0 and 100 level.
Figure 1: Money Flow Index of CTRP Fluctuating Between the 0 and 100 Levels
When a stock’s price rises, the money flow index also rises and is a sign of increased buying pressure. Conversely, if the stock price drops, the Money Flow Index will also decline and is a sign of selling pressure. Therefore, you can easily predict the directional momentum in the market by keeping an eye on the money flow index.