Money Flow Index (MFI)

Overview

The Money Flow Index represents a significant advancement in momentum oscillators by combining price action with volume data to create what is essentially a volume-weighted RSI. Developed by Gene Quong and Avrum Soudack, MFI addresses a fundamental limitation of price-only indicators by recognizing that volume validates price movements. The indicator calculates money flow by multiplying typical price (the average of high, low, and close) by volume, then tracks whether this money flow is positive (flowing into the security) or negative (flowing out). This approach provides deeper insights into market dynamics, as high-volume price moves carry more significance than those on low volume.

The genius of MFI lies in its ability to lead price movements even more effectively than RSI. Since volume typically precedes price changes - as smart money accumulates or distributes positions before major moves - incorporating volume data creates an oscillator with enhanced predictive capabilities. MFI oscillates between 0 and 100, with readings above 80 indicating overbought conditions and below 20 suggesting oversold levels. However, extreme readings above 90 or below 10 carry even greater significance, often marking unsustainable price extremes. The indicator excels at identifying divergences between price and money flow, providing early warning of potential reversals when price makes new highs or lows that aren't confirmed by corresponding MFI movements.

Interpretation & Trading Signals

Example Usage

Code examples will be available once the Rust implementation is complete.