MFI

The MFI indicator provides a volume-weighted version of the Relative Strength Index (RSI) to help traders identify overbought and oversold market conditions based on price and volume data.

Usage

The Usage section describes how the script can be used to identify potential market reversals or trend exhaustion. Traders typically use the Money Flow Index (MFI) to spot when a market is overextended.

• Overbought Levels: When the MFI line crosses above the upper bound (typically set at 80), it suggests the asset may be overbought, indicating a potential downward correction or reversal.
• Oversold Levels: When the MFI line crosses below the lower bound (typically set at 20), it suggests the asset may be oversold, indicating a potential upward correction or reversal.
• Breach Highlighting: The script includes a visual feature that colors the background when the MFI value breaches these bounds, making it easier to identify extreme market conditions at a glance.

Details

The Money Flow Index (MFI) is a technical oscillator that uses both price and volume for measuring buying and selling pressure. Unlike the standard RSI, which only considers price change, the MFI incorporates volume to weigh the momentum.

The calculation uses the Typical Price (HLC3). Positive Money Flow is calculated by summing the money flow of days where the typical price is higher than the previous day. Negative Money Flow is calculated similarly for days where the price is lower. The Money Ratio is then determined by dividing the Positive Money Flow by the Negative Money Flow, which is finally converted into an oscillator ranging from 0 to 100. This implementation is based on the logic popularized by LazyBear and includes optimized alerts for boundary crossovers.

Settings

• Length: The lookback period used to calculate the Money Flow Index (default is 14).
• Lower Bound: The threshold level used to define the oversold zone (default is 20).
• Upper Bound: The threshold level used to define the overbought zone (default is 80).
• Highlight Oversold/Overbought?: A toggle to enable or disable background coloring when the MFI value exceeds the defined bounds.

FAQ

What is the difference between RSI and MFI? While both are momentum oscillators, the RSI only uses price changes in its calculation, whereas the MFI incorporates volume, providing a more comprehensive view of capital flowing in and out of an asset.

How do the alerts work in this script? The script is optimized to trigger alerts whenever the MFI crosses above the upper bound (Overbought) or below the lower bound (Oversold), specifically at the close of the bar.

How can I access MFI? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.