What Is Money Flow Index?
The Money Flow Index (MFI) is often called the "volume-weighted RSI" because it combines price and volume data into a single momentum oscillator. Like RSI, it oscillates between 0 and 100 with overbought (above 80) and oversold (below 20) thresholds. Unlike RSI, MFI weights readings by volume, giving more significance to high-volume price moves.
How Money Flow Index Works
MFI calculation: 1) Calculate Typical Price = (High + Low + Close) / 3; 2) Raw Money Flow = Typical Price × Volume; 3) Separate positive and negative money flow based on whether the typical price rose or fell; 4) Money Flow Ratio = Positive / Negative; 5) MFI = 100 - (100 / (1 + Ratio)). This produces an oscillator that accounts for both the direction and intensity (volume) of price moves.
Why It Matters for Traders
MFI is particularly useful in crypto because volume is a critical component of meaningful price moves. An MFI divergence (price making new highs while MFI declines) is more reliable than pure RSI divergence because it confirms that volume is not supporting the rally. MFI below 20 with high volume indicates capitulation selling — often the most profitable buy signal.
