Money Flow Index (MFI) is a technical indicator used to measure the inflow and outflow of funds in the market within a specific period. MFI takes into account both a stock's price and trading volume and uses specific calculations to evaluate a stock's movements. This includes determining whether the stock price is overbought or oversold, and whether there is a price turning point, etc. Proper use of MFI can help you identify potential trend reversal points, thereby providing valuable reference for your trading decisions. The value of MFI ranges from 0 to 100. Generally speaking, when the stock price rises, the MFI value will increase; when the stock price falls, the MFI value will decrease. When the MFI is greater than 80, the stock is generally considered to be overbought; when the MFI is less than 20, the stock is generally considered to be oversold. If the stock price rises but the MFI value begins to decline, it means that the market's bearish sentiment is gradually taking over and a price turning point is more likely. The MFI is similar to another commonly used technical indicator, the Relative Strength Index, but they are different. RSI only considers stock price fluctuations, while MFI takes into account both stock price and trading volume changes. Therefore, MFI and RSI have different judgment standards when evaluating stock prices. For MFI, the evaluation criteria are usually 20 and 80, while for RSI, the evaluation criteria are 30 and 70. The value range of MFI is 0 ~ 100. Generally, when the MFI is above 80, the market is considered to be overbought, which means that the stock price may face the risk of a correction; when the MFI is below 20, the market is considered to be oversold, which means that the stock price may have an opportunity to rebound. It should be noted that MFI is not an absolute buy and sell signal, but serves as an auxiliary tool to help investors analyze market sentiment and the direction of capital flows. Fund flow index calculation example The following data are data tables obtained from Apple's investor website for the first 14 trading days as of July 6, as well as calculated values using typical price calculation formulas and fund flow calculation formulas: Date Low Price ($) High Price ($) Closing Price ($) Typical Price ($) Trading Volume (Millions) Fund Flow 7.6 (14th day) 141.08144.12142.92 142.71 73.6 10503.21 7.5 (13th day) 136.93141.61 141.56 140.03 71.0 9942.37 7.1 (12th day)135.66 139.04138.93 137.88 71.1 9803.03 6.30 (11th day) 133.77138.37 136.72 136.29 98.6 13437.87 6.29 (10th day) 136.67140.67139.23 138.86 66.0 9164.54 6.28 (9th day)137.32143.42137.44 139.39 66.8 9311.47 6.27 (8th day) 140.97143.49 141.66 142.04 70.0 9942.80 6.24(7th day) 139.77141.91141.66 141.11 89.1 12573.20 6.23 (Day 6)135.63138.59 138.27137.50 72.2 9927.26 6.22 (Day 5)133.91 137.76 135.35135.67 73.1 9917.72 6.21 (Day 4)133.32137.06 135.87135.42 80.7 10928.13 6.17 (Day 3)129.81 133.08131.56131.48 134.5 17684.51 6.16 (Day 2)129.04132.39130.06130.50 108.1 14106.69
6.15 (Day 1)132.16137.34135.43 134.98 91.1 12296.37 6.14 (reference day) 131.48 133.89132.76132.71 In the Typical Price column, prices above the typical price of the previous trading day are marked in green, and prices below the typical price of the previous trading day are marked in red. Therefore, the corresponding positive fund flow is marked in green and the negative fund flow is marked in red. From this calculation, within 14 days, the positive fund flow is $113518.59 million and the negative fund flow is $46020.57 million. Calculate funding ratio: Funding Ratio = Positive Fund Flow / Negative Fund Flow = $113518.59 million / $46020.57 million = 2.47 Calculate the funds flow index: Fund Flow Index = 100 – [100 / (1 + Funding Ratio)] = 100 – [100 / (1 + 2.47)] = 71.15 Therefore, Apple’s MFI value for the 14-day period on July 6 was 71.15. The meaning of funds flow index The main function of the Money Flow Index is to evaluate the price trend of a stock, determine whether the stock price is overbought or oversold, and predict whether the stock price is about to reach a turning point. Source: TradeUP Securities Determine whether a stock is overbought or oversold For most stock price trends, 20 and 80 are usually used as the standard values for judging oversold or overbought. When the MFI value rises above 80, a stock is generally considered to be overbought. This means that the current price has exceeded the suitable time to buy. It is not recommended to continue buying at this time, but it is suitable to sell. When the MFI value falls below 20, a stock is generally considered oversold. This means that the current price has been lower than the right time to sell. It is not recommended to sell at this time, but it is suitable to hold or consider buying. It should be noted that 80 and 20 are not fixed standard values. In some cases, you can adjust these values based on market movements: If the MFI value of a stock remains above 80 for a period of time, 90 can be used as the standard line for overbought. That is, only when the MFI value exceeds 90, it is judged to be overbought. Similarly, if the stock price has a strong downward trend and the MFI value remains below 20 for a period of time, 10 can be used as the standard line for oversold. That is, when the MFI value is lower than 10, the stock is considered to be oversold. Determine stock price trends Usually, the numerical trend of MFI echoes the stock price trend. If the opposite trend occurs, it usually means that the price is about to turn around. When the stock price continues to fall and MFI begins to rise, it indicates that capital inflows increase, buyer power begins to intervene, and the price may turn from bottom to top. When the stock price continues to rise and MFI begins to fall, it indicates that the power of sellers has increased and the stock price may have a turning point from top to bottom. This is a potential signal for short-selling investors to open a position. Identify potential top and bottom reversal signals MFI can be used to identify potential top and bottom reversal signals. When a stock price makes a new high and the MFI fails to follow suit, it can be a top divergence signal, indicating that buying power in the market is waning and the stock price may be headed for a pullback. Similarly, when the stock price hits a new low but the MFI fails to follow suit, this may be a bottom divergence signal, which means that the selling power in the market weakens and the stock price may rebound. It should be noted that MFI is not an absolute buying and selling signal, but serves as an auxiliary tool to help investors understand market sentiment and capital flows. When using MFI, you also need to combine other technical indicators and fundamental factors to conduct a more comprehensive market analysis. The combination of fund flow indicators and other technical indicators Using the Money Flow Index (MFI) in conjunction with other technical indicators can provide a more comprehensive and accurate perspective for market analysis. By combining the signals of multiple indicators, the shortcomings of a single indicator can be compensated, thereby improving prediction accuracy and trading success rate.
For example, MFIs focus primarily on money inflows and outflows, while moving averages reflect price trends and the Relative Strength Index measures price momentum. Using these indicators together, you can gain a more complete understanding of market trends, momentum, and market participant sentiment. Here are examples of using MFI with other technical indicators, all available through the TradeUP Securities APP: Identify overbought and oversold conditions using MFI When the MFI is greater than 80, the market may be overbought, which means the stock price may be at risk of a correction. When the MFI is less than 20, the market may be oversold, which means there may be an opportunity for the stock price to rebound. Confirm trends using moving averages Look at stock prices in relation to short-term (such as the 20-day) and long-term (such as the 50-day or 200-day) moving averages. When prices are above both the short-term and long-term moving averages, it indicates that the market is in an uptrend. On the other hand, when the price is below the short-term and long-term moving averages, it indicates that the market is in a downtrend. Assess Momentum Using the Relative Strength Index (RSI) When RSI > 70, the market may be overheated and at risk of a pullback. When RSI < 30, the market may be too cold and there is an opportunity for a rebound. Comprehensive use of indicators to formulate trading strategies By combining these indicators, you can develop a more comprehensive trading strategy. For example: When the MFI is overbought, the stock price is above the short-term and long-term moving averages, and the RSI is above 70, it means that the market may face the risk of a correction. At this time, you can consider reducing your position or staying on the sidelines. Similarly, when the MFI is oversold, the stock price is below the short-term and long-term moving averages, and the RSI is below 30, it means that the market may have an opportunity to rebound. At this time, you can consider adding positions or looking for appropriate buying opportunities. How to find funds flow indicators? Taking Apple (Ticker: AAPL) as an example, we will introduce how to find its money flow indicator MFI in the TradeUP Securities mobile APP. Note that you need to open TradeUP securities first before you can find the fund flow statement of a stock. Open the TradeUP APP, search for the stock AAPL, and enter the AAPL stock page, as shown below: In [Overview], find the real-time price chart of the stock, click on the upper right corner, and find the [Full Screen] option, as shown below: In the indicator options on the right side of the K-line chart of AAPL, find MFI, which is the capital flow indicator. After clicking, you will find the corresponding MFI indicator line below the K-line chart. As can be seen from the figure, the MFI reached 88.08 when the market was Close on April 6, 2023. Exit from full-screen display and return to the stock homepage, and the MFI indicator will always be displayed. Correlation between MFI and RSI MFI (Money Flow Index) and RSI (Relative Strength Index) are both technical indicators used to measure stock price trends. They use upper and lower limits to evaluate whether a stock is overbought or oversold. MFI is calculated as: Fund Flow Index = 100 – [100 / (1 + Funding Ratio)] RSI is calculated as: RSI = 100 – [100 / ( 1 + (average of rising stock prices/average of falling stock prices))] The main difference between the two is the consideration of transaction volume. In the calculation of MFI, typical prices and trading volumes are used to calculate the funding ratio; RSI, on the other hand, uses only the rise and fall of the stock price for calculations. In terms of selection of standard values: MFI generally uses 20 and 80 as the evaluation criteria for overbought and oversold. When MFI is higher than 80, it means that the stock price has entered an overbought state, and below 20, it means that the stock price has entered an oversold state. RSI generally uses 30 and 70 as the evaluation criteria for overbought and oversold. When RSI exceeds 70, it means that the stock price has entered an overbought state. When RSI is lower than 30, it means that the stock price has entered an oversold stage.
Both measurement standard values can be adjusted according to the actual stock price trend. For example, when the stock price trend is strong, the standard value can be raised as the evaluation standard value of overbought. If the stock price trend continues to be depressed, the standard value can be lowered as the evaluation standard value of oversold. IndicatorMFIRSI Consideration content Stock price and trading volume stock price Index meaning A numerical measure of whether a stock is overbought or oversold overbought valuation MFI ≥ 80, indicating that the stock has entered an overbought state RSI ≥ 70, indicating that the stock has entered an overbought state oversold valuation MFI≤20, indicating that the stock has entered an oversold state RSI ≤ 30, indicating that the stock has entered an oversold state Limitations of using funds flow indicators While MFI values above 80 or below 20 are generally considered signs of overbought or oversold conditions, in strong trends these extreme values may persist for longer periods of time and do not necessarily mean that a price reversal is imminent. For example, in a bull market, the MFI may remain above 80 for a long time, while the stock price may continue to rise; conversely, in a bear market, the MFI may remain below 20 for a long time, but the stock price may not rebound immediately. Additionally, while the MFI can be used to identify top and bottom divergence signals, these signals are not always accurate. Divergence signals can sometimes be temporary and do not necessarily signal a trend reversal. Overall, the Fund Flow Index is an important technical indicator that combines price and volume information to help understand the inflow and outflow of funds. MFI can help identify overbought and oversold conditions, confirm stock price trends, and spot potential top and bottom reversal signals. When using MFI, you should also consider other technical indicators (such as moving averages, relative strength indicators, etc.) and fundamental factors for comprehensive analysis.