Bollinger Bands Money Flow Index

The Bollinger Bands Money Flow Index indicator combines the volatility-based boundaries of Bollinger Bands with the volume-weighted momentum of the Money Flow Index (MFI) to identify relative overbought and oversold conditions.

Usage

The indicator is primarily used to identify market extremes by observing how the MFI reacts to its own Bollinger Band envelopes. Unlike static thresholds (e.g., 80/20), this method adapts to the current volatility of the volume flow.

• Overbought Condition: When the MFI line crosses above the Upper Bollinger Band, the background highlights red, suggesting the asset may be overextended to the upside.
• Oversold Condition: When the MFI line crosses below the Lower Bollinger Band, the background highlights green, suggesting the asset may be overextended to the downside.

Users should adjust the settings so that approximately 85% to 90% of the MFI movement remains within the bands to ensure that breakouts represent significant deviations.

Details

This implementation is based on the concepts presented by John A. Bollinger in "Bollinger on Bollinger Bands." The core idea is that applying Bollinger Bands to an oscillator provides a more dynamic analytical framework than fixed levels. While a standard MFI might stay above 80 for an extended period during a strong bull trend, the Bollinger Bands will expand to contain that movement, only flagging a "breakout" when the momentum becomes extreme relative to its recent average.

The MFI calculation uses typical price (HLC3) and volume to determine the ratio of positive to negative money flow over a specified lookback period, which is then smoothed and bounded by the Bollinger Band calculations.

Settings

• Money Flow Index Length: The lookback period used to calculate the Money Flow Index (default is 10).
• BB Length: The period used for the Simple Moving Average and Standard Deviation of the Bollinger Bands (default is 40).
• Standard Deviation: The multiplier for the bands' width (default is 2.0).
• Highlight Breaks Through: Toggles the background coloring when the MFI exits the bands.

FAQ

How do I interpret the background colors?

A red background indicates the MFI has exceeded the upper volatility band (overbought), while a green background indicates it has dropped below the lower volatility band (oversold).

What timeframes are best for this tool?

The default settings (10 MFI / 40 BB) are designed for daily charts as per John Bollinger's recommendations, but they can be adapted to any timeframe by adjusting the lengths to capture 85-90% of the data within the bands.

How can I access the Bollinger Bands Money Flow Index?

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