Money Flow Index
MFI Definition
The Money Flow Index (MFI) is a popular and useful indicator used in binary trading to help traders assess the momentum of an asset’s price movement. It combines both price and volume data to help traders make better trading decisions.
How MFI Works
The MFI is calculated by using several steps. First, it takes the typical price (Average Price) of an asset, which is a combination of the high, low, and closing price. Next, it calculates the Money Flow by multiplying the typical price with the volume of a particular asset. If the Money Flow is positive, it means there is an accumulation of assets; if it is negative, there is a distribution of assets.
To calculate the MFI, the Money Flow is then divided by a volume sum based on the number of periods of the indicator defined by the trader. The MFI produces readings on a scale of 0 to 100. Low readings indicate a potential oversold condition, while high readings can indicate that an asset is possibly overbought.
How Traders Can Use MFI
When using the MFI, traders should look for divergences between the indicator and the price. If the price is making higher highs, but the MFI is not following, it can signal a reversal in the current trend. Alternatively, if the price is making lower lows, but the MFI is not following, this could indicate that the asset is oversold.
Another trading strategy when using the MFI is to watch for a break above or below the 50 level. If the MFI breaks above 50, it is considered bullish, and if it breaks below 50, it is considered bearish. This can be used in conjunction with other indicators or technical analysis to make informed trading decisions.
How to Apply MFI to a chart on Finteria Platform
Access Finteria Trader from your Account Menu or go to Finteria Trader straight
Switch to Candlestick chart
Click on f(x) button on top of your Candlestick chart and search for Money Flow Index, then choose Money Flow Index from the search list, MACD will be applied to your chart immediately
Conclusion
Overall, the MFI is a helpful tool for traders to include in their binary trading arsenal. It provides insights into market trends, momentum, and potential reversal signals. As with any trading indicator, it is not always accurate and should be used in conjunction with other data points to make optimal trading decisions.
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