What is a good MFI reading to buy a cryptocurrency?

The Money Flow Index (MFI) is a volume-weighted momentum oscillator that helps identify oversold (below 20) or overbought (above 80) conditions in crypto markets, with readings below 20 signaling potential buy opportunities when confirmed by rising momentum and bullish price action.

Aug 04, 2025 at 09:42 am

Understanding the Money Flow Index (MFI) in Cryptocurrency Trading

The Money Flow Index (MFI) is a momentum oscillator that measures the flow of money into and out of a cryptocurrency over a specified period, typically 14 days. It combines price and volume data to assess buying and selling pressure. The MFI ranges from 0 to 100, with readings above 80 considered overbought and readings below 20 deemed oversold. Traders use MFI to identify potential reversal points in price trends. When analyzing cryptocurrency markets, which are highly volatile, MFI can help filter out noise and highlight strong signals for entry or exit.

A key advantage of MFI over the Relative Strength Index (RSI) is its inclusion of volume, making it a more robust indicator of market strength. In low-volume markets, price movements may be misleading, but MFI helps confirm whether a price move is supported by actual capital inflow. For example, if a cryptocurrency’s price rises sharply but MFI remains flat or declines, this divergence suggests weak buying pressure and a potential false breakout.

Interpreting MFI Readings for Buy Signals

When seeking a good MFI reading to buy, traders often look for values below 20, indicating oversold conditions. An MFI below 20 suggests that the asset may be undervalued due to excessive selling pressure, potentially setting the stage for a reversal to the upside. However, entering a trade solely based on an oversold MFI is risky, especially in strong downtrends where prices can remain oversold for extended periods.

To increase accuracy, traders wait for the MFI to rise back above 20 from below. This movement confirms that buying pressure is returning. For example:

• A cryptocurrency drops sharply, and MFI falls to 18
• Over the next few candles, MFI climbs to 23
• This crossover above 20, combined with bullish candlestick patterns, may signal a valid entry point

This confirmation step reduces the risk of catching a falling knife. The transition from oversold to rising momentum reflects a shift in market sentiment, which is essential in volatile crypto markets.

Using MFI Divergence to Identify Strong Buy Opportunities

One of the most powerful applications of MFI is detecting bullish divergence. This occurs when the price of a cryptocurrency makes a lower low, but the MFI forms a higher low. This discrepancy suggests weakening selling momentum despite new price lows, hinting at a potential upward reversal.

To identify bullish divergence:

• Observe a recent price low followed by an even lower low
• Check the corresponding MFI values at both lows
• If the second low in price coincides with a higher MFI value, divergence is present
• Wait for MFI to move above 20 to confirm momentum shift

For instance, Bitcoin drops from $40,000 to $38,000, then falls further to $36,000. If MFI reads 19 at the first low and 22 at the second low, this indicates bullish divergence. Traders might place a buy order near the second low with a stop-loss below it, targeting a move back toward $38,000 or higher.

Combining MFI with Moving Averages for Entry Confirmation

Using MFI in isolation can lead to false signals. To improve reliability, combine it with trend-following indicators like moving averages. A common strategy involves the 50-period and 200-period Exponential Moving Averages (EMA) on a 4-hour or daily chart.

To execute this strategy:

• Ensure the price is above the 50 EMA and ideally above the 200 EMA, indicating an uptrend
• Wait for a pullback that pushes MFI below 20
• Monitor for MFI to cross back above 20
• Enter a long position when price closes above the 50 EMA

For example, Ethereum pulls back during a bullish trend, dropping below the 50 EMA. MFI reaches 17, then climbs to 24. When price recaptures the 50 EMA, it confirms short-term bearish pressure has faded. This confluence of MFI recovery and moving average retest increases the probability of a successful trade.

Setting Stop-Loss and Take-Profit Based on MFI Behavior

Risk management is critical when trading based on MFI signals. After entering a position following an MFI-based buy signal, define exit points using technical levels and MFI behavior.

To set a stop-loss:

• Place it below the recent swing low that coincided with the oversold MFI
• Alternatively, use a percentage-based stop, such as 5–8%, depending on volatility

For take-profit:

• Target the next resistance level, such as a previous high or Fibonacci extension
• Monitor MFI as price approaches the target; if MFI reaches 75 or higher, consider partial profit-taking
• Exit fully if MFI hits 80 and shows signs of reversal, such as bearish candlesticks

For example, buying Solana at $95 after MFI rises from 18 to 23, with a stop-loss at $90. If the next resistance is at $105 and MFI approaches 78 as price nears it, reducing position size or exiting entirely prevents giving back gains.

Common Mistakes When Using MFI for Cryptocurrency Entries

Traders often misuse MFI by acting on oversold readings without confirmation. An MFI below 20 does not guarantee a bounce; it only indicates extreme selling. In strong downtrends, MFI can remain below 20 for multiple periods. Entering prematurely can result in significant losses.

Another mistake is ignoring the broader market context. If Bitcoin is in a sharp decline, altcoins may continue falling despite oversold MFI readings. Always assess Bitcoin dominance and overall market sentiment before relying on MFI signals.

Additionally, using MFI on very short timeframes (e.g., 1-minute charts) increases noise and false signals. It performs best on 1-hour, 4-hour, or daily charts, where volume data is more reliable and trends are clearer.

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Frequently Asked Questions

Can MFI be used during sideways cryptocurrency markets?

Yes, MFI is particularly effective in ranging markets. In a sideways channel, oversold readings near support and overbought readings near resistance provide reliable reversal signals. Traders can buy when MFI crosses above 20 from below during a test of support and sell when MFI drops below 80 from above at resistance.

What volume data does MFI use for cryptocurrencies?

MFI uses the trading volume from the selected exchange and timeframe. On platforms like TradingView or Binance, this is typically the base currency volume (e.g., BTC volume in a BTC/USDT pair). Ensure the chart source has accurate volume reporting, as some exchanges may inflate or lack volume data.

How do I adjust MFI settings for different cryptocurrencies?

The default 14-period setting works well for most cases. For faster signals, reduce to 10; for smoother readings, increase to 20. Highly volatile coins like meme tokens may benefit from a longer period (e.g., 20) to filter out noise. Always backtest changes on historical data before live trading.

Is MFI reliable for low-cap altcoins?

MFI can be less reliable for low-cap altcoins due to low trading volume and potential manipulation. Thin markets may show false MFI divergences or spikes. Use MFI cautiously on such assets and combine it with on-chain data or order book analysis for better confirmation.