logo
Promotions
bonus

Money Flow Index: How to Use It to Trade Bitcoin

Summary

  • The Money Flow Index, or MFI is used to signal when BTC is overbought or oversold.
  • the Money Flow Index oscillates between 0-100. Overbought conditions are signaled when the indicator reaches 90, while oversold conditions are signaled when the indicator reaches 10.
  • If the MFI indicator is trending in the same direction as the price of BTC, there is no divergence present. However, if the MFI indicator is trending in the opposite direction as the price of BTC, there is either a bearish or a bullish divergence at play.

What is the Money Flow Index?

The Money Flow Index, or MFI, is an important (but lesser-known) oscillator that may be used when conducting technical analysis on the price of Bitcoin or other cryptocurrencies. In general, the tool may be used to signal when BTC is overbought or oversold.

As is the case with other oscillators — such as the more-common Relative Strength Index, or RSI — the Money Flow Index oscillates between a minimum of 0 and a maximum of 100. Overbought conditions are generally signaled when the indicator reaches 90, while oversold conditions are signaled when the indicator reaches 10.

bitcoin money flow index

The Money Flow Index (MFI) primarily uses both price and volume to indicate when a buy or sell opportunity may be present. It is often used to spot divergences, and — like all indicators — it is most optimally used in conjunction with other indicators in a well-defined and personalized trading strategy.

price of BTC with the MFI

A chart of the price of BTC with the MFI indicator underneath, on the four-hour time frame, with exclamation points indicating overbought and oversold conditions. Source: TradingView

How is the Money Flow Index calculated?

When seeking to understand the Money Flow Index, it is critical to understand exactly how it works — even if you have no interest in running the calculations yourself.

First and foremost, technical analysts define a time period, and the typical price during the said period, with the following formula:

TP = (High + Low + Close) / 3

In this formula, High is the highest price of BTC. Likewise, Low is the lowest price of BTC and Close is the closing price of BTC during the time period.

Get 180 welcome bonus at Phemex

Next, Money Flow must be defined in this way:

MF = TP * Volume

This allows us to see if the Money Flow for our defined time frame is positive or negative.

After that, we must find the Money Ratio by dividing the positive money flow by the negative money flow using the following formula:

MR = Positive MF / Negative MF

Finally, we may calculate the Money Flow Index as such:

MFI = 100 – (100/ (1+MR))

With these calculations, the Money Flow Index may be used to identify overbought or oversold conditions, as well as bearish or bullish divergences.

How to Use The Money Flow Index to Find Divergence?

Divergences are one of the most powerful indications of a potential trend reversal that the Money Flow Index offers.

Divergences are simple. If the MFI indicator is trending in the same direction as the price of BTC, there is no divergence present. However, if the MFI indicator is trending in the opposite direction as the price of BTC, there is either a bearish or a bullish divergence at play:

  • Bearish divergence: if the price of BTC is pushing higher as the MFI indicator is moving downward, there is a bearish divergence signaling that the price of BTC may soon correct downwards.
  • Bullish divergence: if the MFI starts moving upwards while BTC is selling off, there is a bullish divergence which may indicate that the price of BTC may soon bounce and push higher.

As such, bearish and bullish divergences on the MFI work essentially the same way as they do on other indicators, such as the RSI.

potential bearish and bullish BTC divergence

price of BTC with the MFI indicator with one instance each of a potential bearish and bullish divergence. Source: TradingView

 As illustrated above, divergences are never guaranteed to play out as expected and do not universally signal that a change in Bitcoin’s price trend will happen. More so than other assets, BTC and cryptocurrencies really like to march to the beats of their own drums and are not beholden to signals from oscillating indicators.

trade crypto contracts with up to 100x leverage

Likewise, simply trading off of overbought or oversold conditions is not guaranteed to be the most profitable strategy, either. Bitcoin and other assets may remain overbought or oversold for long periods of time — especially when the market is being driven by a lot of hype or a shift in fundamentals.

btc price chart

A Bitcoin price chart on the weekly timeframe indicating prologued periods of overbought price action. Source: TradingView

Conclusion

The Money Flow Index indicator is an oscillating technical indicator that may be used to identify overbought or oversold market conditions, as well as bearish or bullish divergences.

When used in combination with other technical indicators and a well-defined trading strategy, the Money Flow Index may prove to be a useful tool when buying and selling Bitcoin or other cryptocurrencies on spot markets or in leveraged trades.

No single technical indicator is perfect. As such, the MFI should not be relied on, in isolation, to provide perfect signals for timing tops and bottoms of markets. It is, perhaps, best used in conjunction with the Moving Average Convergence Divergence (MACD) and/or the Relative Strength Index (RSI).


For any inquiries contact us at support@phemex.com
 
Follow our official Twitter | Join our community on Telegram
 
Trade crypto on the go: Download for iOS | Download for Android
 
Phemex | Break Through, Break Free
 

Read More

Sign Up and Claim 4800 USDT
Disclaimer
This content provided on this page is for informational purposes only and does not constitute investment advice, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Products mentioned in this article may not be available in your region. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. For further information, please refer to our Terms of Use and Risk Disclosure

Related articles

What Is Oscillator Trading: How to Use Oscillator Indicators to Trade Crypto Like a Pro

What Is Oscillator Trading: How to Use Oscillator Indicators to Trade Crypto Like a Pro

2025-09-23
|
15-20m
Continuation Patterns: The Ultimate Guide to Trading Crypto Trends

Continuation Patterns: The Ultimate Guide to Trading Crypto Trends

2025-09-23
|
15-20m
The "John Wick" Candle: A Trader's Guide to Long Wick Candlesticks

The "John Wick" Candle: A Trader's Guide to Long Wick Candlesticks

2025-09-18
|
15-20m