Money Flow Index indicator or MFI indicator for short is the instrument that more applies to experienced traders. It refers to the type of technical oscillators that make it possible to evaluate the money outflow and inflow. In fact, it helps to measure price movement over the given period. The tool considers both price and volume to help traders assess the pressure on the asset or market they trade in.
Years of trading experience made it clear that the volume itself does not appear to be an ultimate gauge of momentum. Traders must keep an eye on the way markets react on price movements, changes and pivots. This is where the MFI indicator is capable of confirming the momentum down or upwards. In other words, we have a tool that helps us to identify the market sentiment.
The key challenge for traders who plan to use the Money Flow Index indicator is the fact that they will need to make all calculations themselves. It is not just the point or line that will show you the ultimate price spot with the best market entry or exit position. The good news is that the calculations are pretty simple.
Money Flow Index Indicator Explained
If you plan to use a money flow indicator, keep in mind that it is an oscillator. It displays calculations on a 0-100 scale. After you have completed all necessary calculations, you will get a figure that is plotted on the scale to help you identify the market oversold and overbought signals.