Money Flow is calculated by taking an average of the day's high, low & closing prices, and multiplying the result by the daily volume. Comparing that number to the previous day's figure suggest whether money flow was positive or negative.
Generally, if a share price increases in value (up-tick), it is considered to have positive money flow. If a share price decreases in value (down-tick), it is considered to have negative money flow. The Money Flow indicator thus gives insight into one of the primary and most direct forces on the price of a security.
Using Money Flow - Article by the Curious Investor
The Money Flow Index is based on the premise that a 1 penny move in a stock on 100 share is far less important that an 1 penny move in stock on 10,000 shares. In other words the Money Flow Index suggests that the amount of flow is ultimately more important to the direction of the price than the initial underlying move. The Money Flow Index compares today's average price with yesterday's and weighs the average price by volume. The volume of shares traded on upward moves is added up and then the volume of shares traded on downward moves is subtracted. The cumulative total for the day of every trade's volume is then plotted against a 0 - 100 scale. MFI is usually uses a 14 day lookback period. If all of this sounds familiar it is because the MFI is essentially a volume weighted measure of the RSI.
Invented by Laszlo Birinyi, Jr. MFI shows most promise as a divergence indicator . Typically MFI usually follows the direction of the price, but at those times when it diverges it may suggest either accumulation or distribution which could provide strong clues to future price direction.
