Money Flow Index
The Money Flow Index (MFI) is a volume-weighted momentum oscillator that incorporates both price and volume to measure the strength of money flowing into and out of a security, producing readings between 0 and 100.
The Money Flow Index was developed by Gene Quong and Avrum Soudack and published in the early 1990s as a volume-enhanced version of the RSI. Where the RSI measured the magnitude of price moves over a look-back period, the MFI multiplied each period's typical price by its volume — producing a 'money flow' figure — and then applied RSI-style smoothing to the ratio of positive to negative money flow. The result was an oscillator that interpreted strong price advances on high volume as more significant than the same advance on thin volume.
The calculation: Typical Price = (High + Low + Close) ÷ 3; Raw Money Flow = Typical Price × Volume; Positive Money Flow was the sum of Raw Money Flow on days when Typical Price was higher than the prior period; Negative Money Flow was the sum on days when it was lower; Money Flow Ratio = Positive MF ÷ Negative MF; MFI = 100 − (100 ÷ (1 + Money Flow Ratio)). A 14-period look-back was standard. Readings above 80 indicated overbought conditions; below 20 indicated oversold.
In the Indian context, the MFI proved particularly insightful for analysing mid-cap and small-cap stocks on NSE, where volume patterns were often irregular. Because the index weighted price moves by volume, days with institutional-level participation naturally received greater influence over the MFI reading than days with retail-driven, low-volume activity. This characteristic made it useful for identifying whether a stock's price move reflected genuine demand or merely low-liquidity drift — a distinction especially important in the broader Nifty 500 universe where bid-ask spreads and daily volumes varied widely.
MFI divergences were considered high-quality signals by many Indian technical analysts. A stock making a new 52-week high while MFI registered a lower peak than its previous swing suggested that the advance was occurring on progressively weaker volume participation — a potential sign of distribution by larger holders. Conversely, a stock near its 52-week low with an MFI that was trending higher implied that money was flowing in on weakness, consistent with quiet accumulation.
The MFI was also used alongside VWAP-based analysis by intraday traders. On high-volume stocks like Reliance Industries, HDFC Bank, and Infosys, intraday money flow patterns visible through a 9-period MFI on the 15-minute chart helped traders assess whether institutional participation was supportive or adverse relative to the intraday trend — a form of real-time order flow inference from publicly available exchange data.