What is an MFI indicator?

The MFI indicator stands for  M oney  F low  I ndex, which means liquidity flow index. MFI is an oscillator that is made using price and trading volume and is commonly known as weighted RSI with volume, this indicator fluctuates the liquidity flow index like indicators between 0 and 100 and when demand is high And the price goes up, goes up, and when the price goes down to supply goes up, it goes down.

It is interesting to know that this indicator is exactly like the RSI indicator and the only difference in its calculation is the use of volume in its formula. In the case of RSI, when this indicator is above the limit of 70 or below the limit of 30, buy saturation and sell saturation occur, respectively. In the case of the mfi indicator, this includes the numbers 80 and 20, respectively, and when the value The MFI penetrates above 80. The buy saturation mode and when it goes below 20 is the sell saturation. In the figure below, you can see the fluctuation of this indicator in the share of this car (vehicle). The following figure is  Amibroker analytics software  .

Applications of MFI indicator

This indicator, like the RSI copper indicator, can show you the saturated areas of buying and selling, the entry and exit of each of these areas is a special signal in this indicator. In the figure above, if you look closely, you can see that when the indicator is out of saturation, the share trend has changed, even for a short time. On the other hand, this indicator can also be used to draw the trend line, when for this indicator You can draw a trend line. In the areas where this trend line is broken, you can get an entry and exit signal from the share. How to draw this trend line and how to use it along with applied technical analysis can give you a lot of power. Select areas of entry and exit from the share. The use of this indicator is also used to find positive and negative divergence in stocks. The following figure shows the  positive divergence of the MFI indicator In Iran Khodro’s share, the share price has increased.

Formula for calculating the liquidity flow indicator or MFI

Although knowing the formula for calculating indicators is not  a big issue in learning this indicator,  but friends who want to know about this indicator and how to calculate it, pay attention to the following formulas

Step 1: Calculate the average of the three prices

In the above formula, the average price of high, low and closed shares is obtained

 Step 2: Calculate the cash flow

Step 3: Calculate the liquidity ratio

Positive money flow is the sum of all days when the average price is three times higher than the day before.

Negative money flow is the sum of all days when the average price is three times lower than the day before.

Step 4: Calculate the liquidity flow index or MFI

This ratio is obtained from both formulas below

Footnote:  To use this indicator correctly, we do not need to learn the calculation of this formula.

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