<p class=“MsoNormal“>Money Flow Index
Explained</p><p class=“MsoNormal“>The <a target=“_blank“ href=“https://demaxis.com/“ target=“_blank“>Money Flow Index</a> (IMF) is a technical indicator
that utilizes volume data and price in recognizing overbought or oversold
signals in an asset. Also, it could be used to identify divergences, which warn
of a trend alteration in price.</p><p class=“MsoNormal“>The oscillator is
moving between 0 and 100. A reading above 80 is deemed overbought, and an
interpretation below 10 is considered oversold. Even so, the levels 90 and 10
are also used as thresholds.</p><p class=“MsoNormal“>Calculating the Money
Flow Index</p><p class=“MsoNormal“>The following are the
several steps for calculating the Money Flow Index. It is recommended to do the
calculation using a spreadsheet rather than by hand.</p><p class=“MsoNormal“>Step 1: Compute the
typical price of each of the last 14 periods.</p><p class=“MsoNormal“>Step 2: For each
period, spot whether the common price was higher or lower compared to the
previous cycle. It will tell you if the raw money flow is positive or negative.</p><p class=“MsoNormal“>Step 3: Calculate the
raw money flow by multiplying the classic price by volume for that specific
period. Use negative or positive numbers depends on whether the term was up or
down.</p><p class=“MsoNormal“>Step 4: Compute the
money flow ratio by adding up all the positive money flows over the past 14
periods. Then, divide it by the negative money for flows for the same prior
course.</p><p class=“MsoNormal“>Step 5: Calculate the
Money Flow Index using by utilizing the ratio constituted in step four.</p><p class=“MsoNormal“>Step 6: Continue doing
the calculations as each new period ends by only using the data from the last
14 periods.</p><p class=“MsoNormal“>MFI’s Usage</p><p class=“MsoNormal“>One major way to use
the Money Flow Index is when there is a presence of divergence when the
oscillator is traversing in the opposite direction of the price. It is a hint
of a possible reversal in the prevailing price trend.</p><p class=“MsoNormal“>For instance, a very
high Money Flow Index that starts to decline below a reading of 80 while
underlying security continues to rise is a price reversal signal to the
pitfall.</p><p class=“MsoNormal“>On the other hand, a
very low MFI level that climbs above a reading of 20 while the implied security
continues to sell off is a signal of price reversal to the upper side.</p><p class=“MsoNormal“>Also, traders are
watching for larger divergences using multiple waves in the price and MFI. For
example, a stock hit a peak of $10.00 but pulled back to the $8.00 level. Then,
it rebounded higher to $12.00. </p><p class=“MsoNormal“>This means that the
price has made two successive higher, which is at the zone of $10.00 and
$12.00. If the MFI makes a lower higher when it reaches $12.00, the oscillator
is not confirming the new high. Accordingly, it could indicate a plunge in
price.</p><p class=“MsoNormal“>Furthermore, the
overbought and levels are used to indicate a possible trading chance. It is
believed that movements below 10 and above 90 are rare. Besides, traders observe
for the MFI to move back above 10 to <a target=“_blank“ href=“https://demaxis.com/Registration“ target=“_blank“>indicate
a long trade</a> and plummet below 90 to signal a short trade.</p>
Explained</p><p class=“MsoNormal“>The <a target=“_blank“ href=“https://demaxis.com/“ target=“_blank“>Money Flow Index</a> (IMF) is a technical indicator
that utilizes volume data and price in recognizing overbought or oversold
signals in an asset. Also, it could be used to identify divergences, which warn
of a trend alteration in price.</p><p class=“MsoNormal“>The oscillator is
moving between 0 and 100. A reading above 80 is deemed overbought, and an
interpretation below 10 is considered oversold. Even so, the levels 90 and 10
are also used as thresholds.</p><p class=“MsoNormal“>Calculating the Money
Flow Index</p><p class=“MsoNormal“>The following are the
several steps for calculating the Money Flow Index. It is recommended to do the
calculation using a spreadsheet rather than by hand.</p><p class=“MsoNormal“>Step 1: Compute the
typical price of each of the last 14 periods.</p><p class=“MsoNormal“>Step 2: For each
period, spot whether the common price was higher or lower compared to the
previous cycle. It will tell you if the raw money flow is positive or negative.</p><p class=“MsoNormal“>Step 3: Calculate the
raw money flow by multiplying the classic price by volume for that specific
period. Use negative or positive numbers depends on whether the term was up or
down.</p><p class=“MsoNormal“>Step 4: Compute the
money flow ratio by adding up all the positive money flows over the past 14
periods. Then, divide it by the negative money for flows for the same prior
course.</p><p class=“MsoNormal“>Step 5: Calculate the
Money Flow Index using by utilizing the ratio constituted in step four.</p><p class=“MsoNormal“>Step 6: Continue doing
the calculations as each new period ends by only using the data from the last
14 periods.</p><p class=“MsoNormal“>MFI’s Usage</p><p class=“MsoNormal“>One major way to use
the Money Flow Index is when there is a presence of divergence when the
oscillator is traversing in the opposite direction of the price. It is a hint
of a possible reversal in the prevailing price trend.</p><p class=“MsoNormal“>For instance, a very
high Money Flow Index that starts to decline below a reading of 80 while
underlying security continues to rise is a price reversal signal to the
pitfall.</p><p class=“MsoNormal“>On the other hand, a
very low MFI level that climbs above a reading of 20 while the implied security
continues to sell off is a signal of price reversal to the upper side.</p><p class=“MsoNormal“>Also, traders are
watching for larger divergences using multiple waves in the price and MFI. For
example, a stock hit a peak of $10.00 but pulled back to the $8.00 level. Then,
it rebounded higher to $12.00. </p><p class=“MsoNormal“>This means that the
price has made two successive higher, which is at the zone of $10.00 and
$12.00. If the MFI makes a lower higher when it reaches $12.00, the oscillator
is not confirming the new high. Accordingly, it could indicate a plunge in
price.</p><p class=“MsoNormal“>Furthermore, the
overbought and levels are used to indicate a possible trading chance. It is
believed that movements below 10 and above 90 are rare. Besides, traders observe
for the MFI to move back above 10 to <a target=“_blank“ href=“https://demaxis.com/Registration“ target=“_blank“>indicate
a long trade</a> and plummet below 90 to signal a short trade.</p>
This article was written by ForexLive at forexlive.com.