Investment Basics of Money Flow

Money Flow (MF) can be assessed and technically analyzed using various component indicators. These indicators are vital to an investor when deciding when to make entries and exits into a specific trading program. Money Flow, as an indicator, is synonymously used to refer to the Money Flow Index (MFI). It was Marc Chaikin who developed the money flow theorem, using both the price and the volume as a calculating principle of the price action in any trading issue. When the results of a particular trading day or period have been calculated, the numbers are compared with those of previous day or period to establish whether the MF gained or lost for that particular day or period.

The flow can also be calculated using the Relative Strength Index (RSI), which only differs from the MFI in that MFI accounts for both price and volume, whereas RSI only factors price as the variable.

To calculate Money Flow, an investor uses an average price, which increases after every subsequent bar.  He then determines the average price by reducing the average price of

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