Mfi Reversal (Mean reversion)

Money Flow Index — RSI weighted by turnover: buys when the oscillator climbs back out of the oversold 20 zone and sells when it pushes through overbought 80.

How It Works

1. Compute the 14-bar Money Flow Index: the same 0-100 scale as RSI, but each bar's move weighted by the money that changed hands on it.
2. Buy when MFI climbs back above 20 — selling pressure was heavy enough to exhaust the oversold zone and money is starting to flow back in.
3. Sell when MFI pushes above 80, where buying volume has crowded in far enough to call the move overbought.

Worked example. A sell-off on heavy volume drags MFI to 14. The next bar lifts it to 23, crossing back above 20, so the strategy buys. The recovery draws steady buying until MFI prints 83 and the position is closed. A similar-looking dip on thin volume never pushes MFI below 20 at all — the volume weighting is what separates the two.

The Math Behind The Indicators

Everything runs on closing prices of the traded timeframe: P is a close, P_t today's close, and N counts bars — one bar is one candle of that timeframe, so 20 bars on a 1h chart is 20 hours.

Money Flow Index (MFI)

RSI with turnover attached. Each bar's typical price — the average of its high, low and close — is multiplied by volume to give the money that flowed that bar, counted as positive when the typical price rose and negative when it fell. The ratio of positive to negative flow over N bars is then squeezed onto the same 0-100 scale RSI uses. The difference matters: a slide nobody traded barely moves MFI, while the same slide on heavy volume drives it hard.

\[\mathrm{MFI}_N = 100 - \dfrac{100}{1 + \mathrm{MFR}}, \quad \mathrm{MFR} = \dfrac{\sum \text{positive } TP \cdot V}{\sum \text{negative } TP \cdot V}, \quad TP = \dfrac{H+L+P}{3}\]

Example: Over 14 bars, money flowing in on up bars totals 3,000 and money flowing out on down bars totals 1,000. The ratio is 3, so MFI = 100 − 100/4 = 75 — approaching the overbought 80 line.

Example Chart

Real Data28/ 100Composite score

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Final Metrics

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Resampled Data28/ 100Composite score

Metrics Per Trade

Final Metrics

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