Direct Answer
Money flow is commonly defined as the typical price of a bar multiplied by its volume, giving the value traded in the bar. Raw money flow is the input to the Money Flow Index, where it is split into positive and negative flow by price direction. Larger raw money flow means more value traded in the bar.
Money Flow: Formula, Meaning, Signals, Examples and How to Use It
How Is Money Flow Calculated?
Money flow is commonly defined as the typical price of a bar multiplied by its volume, giving the value traded in the bar. Raw money flow is the input to the Money Flow Index, where it is split into positive and negative flow by price direction.
Formula: Raw Money Flow = Typical Price x Volume, where Typical Price = (High + Low + Close) / 3
Inputs:
- Bar high, low and close
- Bar volume
- Prior bar's typical price (to classify flow as positive or negative)
Worked example. A bar with a high of 20.40, low of 19.60 and close of 20.00 on 100,000 shares has a raw money flow of 2,000,000. The inputs are illustrative numbers, not market data.
Reading it. Larger raw money flow means more value traded in the bar. In the Money Flow Index, raw flow on bars where typical price rose is summed against flow where it fell, and the ratio is read as buying versus selling pressure.
Limits. Raw money flow by itself has no direction; direction comes from comparing typical price with the prior bar. Typical price is a one-point summary of a bar that traded at many prices, and the term 'money flow' is also used by other indicators with different formulas.
What is Money Flow?
Money flow is commonly defined as the typical price of a bar multiplied by its volume, giving the value traded in the bar. Raw money flow is the input to the Money Flow Index, where it is split into positive and negative flow by price direction.
How to use Money Flow
Larger raw money flow means more value traded in the bar. In the Money Flow Index, raw flow on bars where typical price rose is summed against flow where it fell, and the ratio is read as buying versus selling pressure. A reading alone is never a buy or sell signal; it needs context from price structure, volume, volatility and the broader market regime.
Strengths
- Typical price times volume gives value traded in the bar, so it is in currency units and can be summed over any window.
- As the input of the Money Flow Index, raw flow lets the MFI be reproduced step by step from bar data.
- Reproducible when the formula and data convention are fixed.
Weaknesses and limitations
- Typical price gives the close only a third of the weight, so a bar that closes far from its midpoint is represented by a price few trades took place at.
- Raw money flow increases with price level and with market size, so the figure is not comparable across instruments.
- Correlated indicators can create false confidence by repeating the same underlying information.
Editorial and risk note
This page is educational content, not individualized investment advice. It should not imply guaranteed prediction, accuracy or outperformance.
Frequently Asked Questions
Is Money Flow a buy or sell signal?
No. Larger raw money flow means more value traded in the bar. Raw money flow by itself has no direction; direction comes from comparing typical price with the prior bar. A trade built on it still needs a trigger, an invalidation rule, a position size and realistic execution assumptions.
What is the best setting for Money Flow?
Money Flow takes these inputs: bar high, low and close; bar volume; prior bar's typical price (to classify flow as positive or negative). There is no universal best setting for the tunable ones, so test them across instruments, regimes and out-of-sample periods and favor stable parameter regions over one historical winner.
Can Money Flow be used by itself?
Raw money flow by itself has no direction; direction comes from comparing typical price with the prior bar. Typical price is a one-point summary of a bar that traded at many prices, and the term 'money flow' is also used by other indicators with different formulas. For that reason it is read next to measures of direction, participation, valuation, liquidity and risk, not alone.
Does Money Flow work on every timeframe?
The calculation (Raw Money Flow = Typical Price x Volume, where Typical Price = (High + Low + Close) / 3) can be run on any bar size, but behavior is not portable: a reading on a five-minute chart describes a very different market window from the same reading on a daily chart. Validate the exact timeframe before relying on it.
Why does Money Flow give false signals?
Typical price gives the close only a third of the weight, so a bar that closes far from its midpoint is represented by a price few trades took place at. Raw money flow increases with price level and with market size, so the figure is not comparable across instruments. Lag, noise and regime changes add to this, because market participants react to new information after the reading is calculated.
How should Money Flow be backtested?
Rebuild Money Flow from bar high, low and close using point-in-time data, write the rules before testing, include delisted securities where relevant, model realistic fills and costs, reserve a validation sample and compare with a simpler baseline.