Now that we've taken a look at the Relative Strength Index (RSI) , let's take a look at a more stringent momentum indicator. The Money Flow Index measures the strength of money flowing into and out of a stock . The difference between the RSI and Money Flow is that where RSI only looks at prices, the Money Flow Index also takes volume into account.

Calculating Money Flow is a bit more difficult than the RSI:

First we need the average price for the day:

Average Price = (Day High + Day Low + Close)/3

Now we need the Money Flow:

Money Flow = Average Price x Day's Volume

Now, to calculate the money flow ratio you need to separate the money flows for a period into positive and negative. If the price was up in a particular day this is considered to be "Positive Money Flow". If the price closed down it is considered to be "Negative Money Flow".

Money Flow Ratio = Positive Money Flow/Negative Money Flow

It is the Money Flow Ratio that is used to calculate the Money Flow Index.

The Money Flow ranges from 0 to 100. Just like the RSI, a stock is considered overbought in the 70- 80 range and oversold in the 20-30 range.

The shorter number of days you use, the more volatile the Money Flow is. For the example below we will use a 14 day average.