Money flow is a momentum indicator (see below) that measures the strength of money flowing into or out of a market.

Money flow in technical analysis is typical price multiplied by volume, a kind of approximation to the dollar value of a day's trading.

Money flow index (MFI) is an oscillator calculated over an N-day period, ranging from 0 to 100, showing money flow on up days as a percentage of the total of up and down days.

The calculations are as follows. The typical price for each day is the average of high, low and close,

Money flow is the product of typical price and the volume on that day.

Totals of the money flow amounts over the given N days are then formed. Positive money flow is the total for those days where the typical price is higher than the previous day's typical price, and negative money flow where below. (If typical price is unchanged then that day is discarded.) A money ratio is then formed

From which a money flow index ranging from 0 to 100 is formed,

This can be expressed equivalently as follows. This form makes it clearer how the MFI is a percentage,

MFI is used as an oscillator. A value of 80 is generally considered overbought, or a value of 20 oversold. Divergences between MFI and price action are also considered significant, for instance if price makes a new rally high but the MFI high is less than its previous high then that may indicate a weak advance, likely to reverse.

It will be noted the MFI is constructed in a similar fashion to the relative strength index. Both look at up days against total up plus down days, but the scale, ie. what is accumulated on those days, is volume (or dollar volume approximation rather) for the MFI, as opposed to price change amounts for the RSI.

It's important to be clear about what "money flow" means. It refers to dollar volume, ie. the total value of shares traded. Sometimes finance commentators speak of money "flowing into" a stock, but that expression only refers to the enthusiasm of buyers (obviously there's never any net money in or out, because for every buyer there's a seller of the same amount).

For the purposes of the MFI, "money flow", ie. dollar volume, on an up day is taken to represent the enthusiastism of buyers, and on a down day to represent the enthusiasm of sellers. An excessive proportion in one direction or the other is interpreted as an extreme, likely to result in a price reversal.

Similar indicators

Other Price × Volume indicators:

• On-balance Volume
• Price and Volume Trend
• Accumulation/distribution index

See also

• Dimensional analysis - explains why volume and price are multiplied (not divided) in such indicators

Momentum and rate of change (ROC) are simple technical analysis indicators showing the difference between today's closing price and the close N days ago. Momentum is simply the difference,

Rate of change scales by the old close, so as to represent the increase as a fraction,

"Momentum" in general refers to prices continuing to trend. The momentum and ROC indicators show that by remaining positive while an uptrend is sustained, or negative while a downtrend is sustained.

A crossing up through zero may be used as a signal to buy, or a crossing down through zero as a signal to sell. How high (or how low when negative) the indicators get shows how strong the trend is.

The way momentum shows an absolute change means it shows for instance a $3 rise over 20 days, whereas ROC might show that as 0.25 for a 25% rise over the same period. One can choose between looking at a move in dollar terms or proportional terms. The zero crossings are the same in each, of course, but the highs or lows showing strength are on the respective different bases.

SMA

Momentum is the change in an N-day simple moving average (SMA) between yesterday and today, with a scale factor N, ie.

This is the slope or steepness of the SMA line, like a derivative. This relationship is not much discussed generally, but it's of interest in understanding the signals from the indicator.

When momentum crosses up through zero it corresponds to a trough in the SMA, and when it crosses down through zero it's a peak. How high (or low) momentum gets represents how steeply the SMA is rising (or falling).

The TRIX indicator is similarly based on changes in a moving average (a triple exponential in that case).