MFI From Scratch
Hello, traders!
As you know, the knowledge of a coin be overbought or oversold can be very profitable for any trader. That's why it's very important to identify these states. Moreover, the indicator that help us has already been invented. Well, today we'll speak aboout Money Flow Index.
The Money Flow Index (MFI) is a technical oscillator that uses price and volume data for identifying overbought or oversold signals in an asset. It can also be used to spot divergences which warn of a trend change in price. The oscillator moves between 0 and 100.
Unlike conventional oscillators such as the Relative Strength Index (RSI), the Money Flow Index incorporates both price and volume data, as opposed to just price. For this reason, some analysts call MFI the volume-weighted RSI.
There are two possible ways of using this oscillator - diverhence and detecting overbought and oversold regions.
It's rather easy to detect divergence of price with MFI. If you don't know whhat divergence is, read our cheat sheet to be aware of such powerful tool.
The overbought and oversold levels are also used to signal possible trading opportunities. Moves below 10 and above 90 are rare. Traders watch for the MFI to move back above 10 to signal a long trade, and to drop below 90 to signal a short trade.
I hope, you'll find the information useful. I try to make the articles that are interesting for me. However, I want to know your oppionoin. Write down to comments what is intersting for you.
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