Mikula Forecasting Company

MarketWarrior: Using The Money Flow Index

The Money Flow Index (MFI) has proven to be a good indicator for trading on real-time charts. The MFI is one of the best momentum indicators that includes volume in the calculation. If you are using a data set which does not include volume, do not use the MFI. The techniques used with the MFI are the traditional Bullish Divergence, Bearish Divergence, over bought signals and over sold signals. The first chart below is a 1 minute chart for Apple, symbol AAPL from Tuesday July 15, 2008. The chart shows a Bearish Divergence identified by the letters "C" and "D". The stock price was higher at "D" than "C" while the MFI was lower at "D" than "C". This means the MFI is falling while the price is rising. This is Bearish Divergence, and indicates a down swing will come soon. After "D" the stock price started a down swing.



Here is a second example of using the MFI with real-time charts. The chart below is from Tuesday July 15, 2008 and shows a 1 minute chart for Yahoo, symbol YHOO. On this chart the letters "C" and "D" identify an example of Bullish Divergence. On the Yahoo stock "D" is lower than "C" while on the MFI, "D" is higher than "C". This shows Bullish Divergence and indicates after "D" there should be a market rally. On this chart you can see that after "D" the Yahoo stock had a nice rally.




Here is an example of using the MFI with an oversold signal. When using the MFI with an oversold signal you should watch for the MFI to move very close to zero. Having the MFI move below the lower boundary line is not good enough to give a buy signal, the MFI must move down very close to zero before a signal becomes important. The chart below shows a 1 minute chart for Apple, symbol AAPL On this chart the MFI moved down very close to zero indicating the market was over sold, this is identified by "B". When the MFI turned up, a buy signal was given, and you can see the stock price then moved up.



Here is our final example for using the MFI. This example shows a over bought signal on a 1 minute bar chart for Apple, symbol AAPL. When using the over bought signal with the MFI you must wait for the MFI to move as close to 100 as possible. The MFI is an oscillator that movers from 0 to 100. The closer to 100, the better the over bought signal. My personal belief is that only MFI values above 90 should be used to sell short and the closer to 100 the better. On the chart below the letter "A" marks a peak in the MFI above 95. This peak is an over bought sell signal. After this peak in the MFI the price of Apple fell sharply.