Money Flow Index Price MFI Indicator for MT4

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Money Flow Index Price MFI Indicator for MT4

Introduction to the Money Flow Index Price MFI Indicator

Many would say that the Relative Strength Index (RSI) is one of the most popular momentum oscillators used by traders, and this is probably due to its effectiveness in determining momentum direction and mean reversals.

The Money Flow Index (MFI) Indicator can be said as an improved version of the RSI since it incorporates volume within its formula, which is an important element of momentum.

What is the Money Flow Index Price MFI Indicator?

The Money Flow Index or MFI Indicator is a momentum following technical indicator which indicates the direction of momentum as an oscillator. This indicator plots a line which oscillates within the range of zero to 100 in a characteristically very responsive manner.

Money Flow Index Price MFI Indicator for MT4

The MFI Indicator is somewhat similar to the Relative Strength Index (RSI) indicator. However, the MFI does have a subtle difference since the MFI incorporates volume while RSI is purely based on price movements.

How the Money Flow Index Price MFI Indicator Works?

As mentioned above, one of the key features of the MFI Indicator is that it incorporates volume when determining momentum. It does this by multiplying the Typical Price, which is the average of the high, low, and close of price, with the volume for that period. This would then result in the Raw Money Flow. An n period Positive Money Flow is then divided by the n period Negative Money Flow. The result would then be the Money Flow Ratio which is used to compute for the Money Flow Index.

How to use the Money Flow Index Price MFI Indicator for MT4

The MFI Indicator has a couple of variables which can be adjusted within its indicator settings.

“ExtMFIPeriod” refers to the number of periods the MFI Indicator uses to compute for the direction of momentum.

“Applied_price” refers to the price point used as the source of price for the computation of the MFI.

  • 0 – Close
  • 1 – Open
  • 2 – High
  • 3 – Low
  • 4 – Median Price
  • 5 – Typical Price
  • 6 – Weighted Close Price

How the Money Flow Index Price MFI Indicator Works

As with the RSI, the MFI Indicator is mainly used to determine overbought and oversold price levels. Many traders use levels 20 and 80 for this. An MFI line which is below 20 is indicative of an oversold market, while an MFI line which has breached above 80 is indicative of an overbought market. Both conditions are prime for a mean reversal.

Buy Trade Setup

When to Enter?

Wait for the MFI line to drop below 20. Open a buy order as price action shows signs of a bullish reversal based on the candlestick patterns. Set the stop loss on the support below the entry candle.

When to Exit?

Set the take profit target on the next logical resistance level.

How to use the Money Flow Index Price MFI Indicator for MT4 - Buy Trade

Sell Trade Setup

When to Enter?

Wait for the MFI line to breach above 80. Open a sell order as price action shows signs of a bearish reversal based on the candlestick patterns. Set the stop loss on the resistance above the entry candle.

When to Exit?

Set the take profit target on the next logical support level.

How to use the Money Flow Index Price MFI Indicator for MT4 - Sell Trade

Conclusion

The Money Flow Index Indicator is an excellent momentum-based oscillator. It works well in determining potential mean reversals coming from overbought and oversold price levels. It is also best used in confluence with price action and other technical analysis indications for better accuracy.

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Money Flow Index Price MFI Indicator for MT4

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