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What is the MFI Indicator? A trading momentum indicator that traders need to understand
Every trader must be familiar with this important indicator: Money Flow Index or MFI indicator. It is a analytical tool used to track the money flow in the market. It tells us whether money is flowing into or out of an asset, allowing us to measure buying and selling pressure clearly.
The MFI indicator can be used in all types of markets, whether stocks, Forex, or cryptocurrencies. This article will help you understand what the MFI indicator is, how to use it, the calculation formula, and its advantages and disadvantages.
What is the MFI Indicator?
The MFI indicator (Money Flow Index) is a measure of market buying and selling strength by examining the movement of investment funds. When the MFI indicator has a high value, it indicates that a lot of money is flowing in, showing strong buying pressure. Conversely, when the value is low, it suggests that money is flowing out, which may indicate powerful selling pressure.
How to interpret MFI indicator values:
How is the MFI Indicator different from RSI?
The MFI indicator and RSI (Relative Strength Index) both measure market strength, but they operate differently.
RSI uses a mathematical formula to compare the increase and decrease of prices, ranging from 0-100. When above 70, the market is strong; below 30, the market is weak.
MFI indicator differs in that it considers trading volume, not just price. The MFI is calculated from the typical price (Typical Price) multiplied by volume. This method provides a more comprehensive view because it includes actual inflow and outflow data.
How to calculate the MFI Indicator
The calculation formula for the MFI indicator involves the following steps:
Step 1: Calculate Typical Price