Constructing a bounded money-flow oscillator from range and volume

Construction before confirmation

This Money Flow Index construction builds a bounded oscillator from consecutive high-low ranges and volume. The archive workflow completes that series before it applies a later confirmation reading.

The finished oscillator is a signed, volume-weighted lookback of a high-low multiplier. Confirmation rules are introduced only after that series exists.

Three construction steps

The oscillator is constructed in three steps: a per-bar multiplier, that multiplier times the same bar's volume, then the lookback sum of those signed volumes divided by the lookback sum of volume.

The default construction uses a 20-period lookback that the builder can change. The same three-step formula is written for daily, weekly, or monthly bars.

The high-low multiplier

The multiplier is the current high minus the prior low, minus the prior high minus the current low, divided by the sum of those two range terms. When that denominator is zero, a small substitute is used so the bar still has a defined multiplier.

A gap up that leaves the current low at or above the prior high forces the multiplier to +1. A gap down that leaves the current high at or below the prior low forces it to -1.

Bounds and a close-in-range contrast

The finished series is bounded between -1 and +1. It usually stays between about -0.50 and +0.50, and it treats zero as the buying-versus-selling centerline.

Unlike a close-in-range money-flow multiplier, this construction compares current and prior highs and lows. A gap down with a close in the upper half of the bar can keep the oscillator negative, while a close-in-range version turns positive.

A moving-average baseline

A 50-period exponential moving average is shown with the oscillator on the same price series so the construction can be read against an explicit trend baseline.

Editorial note: TradersWeek reads that Moving average as a separate trend baseline, not as another step in the Money Flow Index construction.

Divergence after the series is built

A bullish Price-indicator divergence is treated only as reduced selling pressure until the oscillator itself crosses above zero. A bearish Price-indicator divergence is treated only as reduced buying pressure until the oscillator crosses below zero.