Why All Investors Should Pay Attention to the Money Flow Index (MFI)

One of the best ways to spot opportunity is by paying attention to money flow.

If money is flowing out of a stock, there’s a good chance the stock could pullback. In that case, you may want to consider shorting the stock. Or, for our purposes today, if money is just beginning to flow into a stock, you may want to consider buying it. 

One way to pinpoint when either is likely to happen is by paying attention to MFI, or the Money Flow Index – a popular indicator that indicates the strength of money flowing in or out. For example, if MFI is below 20, the stock is considered oversold. 

If MFI is above 80, the stock is considered overbought.

Look at Disney (DIS) for example.


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On this three-year chart of Disney notice what happens each time MFI hits or penetrates the 20-line. Up to 80% of the time, it begins to pivot higher and takes the stock with it. Or look at what happens when MFI gets to or above the 80-line.  Shortly after, the stock begins to pivot lower because money has begun to pull out of the stock.

Then again, we never want to rely on just MFI as our buy or sell indicator.

We can also use other indicators such as the Bollinger Bands (2,20), MACD, relative strength (RSI), and Williams’ %R (W%R). In fact, when each of these aligns with Money Flow, we can call tops and bottoms again up to 80% of the time.

Or, look at Amgen (AMGN).

Again, look at what happens each time MFI hits or penetrates the 20-line. Up to 80% of the time, it begins to pivot higher and takes the stock with it. Or look at what happens when MFI gets to or above the 80-line. Shortly after, the stock begins to pivot lower because money has begun to pull out of the stock.

Here, too, we can also look for support from the Bollinger Bands (2,20), MACD, relative strength (RSI), and Williams’ %R (W%R). 

In short, never limit the way you spot opportunities with technical analysis. 

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