Why it Pays to Monitor the Money Flow Index

February 13, 2019, By fierceinvestor,

There are many analysts that write off technical analysis as useless.

However, once you get into the swing of exactly what to look for, you can begin to see patterns that repeat themselves over and over again.

And as those patterns repeat, that’s where your opportunity is to buy or sell.

Aside from Bollinger Bands (2,20), MACD, Relative Strength (RSI) and Williams’ %R, another key technical indicator to monitor is Money Flow (MFI).

The Money Flow Index (MFI)

MFI helps us spot strength of money flowing in or out of a stock, an ETF, and an index.  It can also be used to confirm trends and potential pivot points.

For example, if MFI is below 20, the stock can be considered oversold.

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

Of course, we’d never just rely on MFI to buy or sell a stock.  We would use other confirming technical indicators, such as the ones mentioned above.  But let’s take a quick look at just why we want to include MFI in our technical analysis.

Look at Glu Mobile (GLUU), for example.

Look at what happens each time MFI pushes to or above the 80-line.  The stock begins to pivot and reverse lower, as it becomes clear that money is about to flow out of the name on excessively overbought conditions.

Or, look at what happens to the stock when MFI drops to or below the 20-line. The stock begins to bottom out, pivot and turn higher.

We can clearly see this has happened multiple times over the last two years alone.

MFI is just another indicator to be well aware of if you’re trying to spot opportunity.  Again, though, never use a sole indicator in your analysis.  Be sure to confirm and do your due diligence with other essential analytical tools.

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