Spaf
Honorary Hall of Fame Member
Chaikin Money Flow [Volume Indicator]
Where is the money?
Another popular indicator by Marc Chaikin based on the Accumulation Distribution line. The indicator often warns of breakouts and provides useful trend confirmation.
Chaikin Money Flow is based on the observation that buying support is normally signaled by increased volume and frequent closes in the top half of the daily range. Likewise, selling pressure is evidenced by increased volume and frequent closes in the lower half of the daily range. See Accumulation and Distribution.
Chaikin Money Flow is calculated by summing Accumulation Distribution for 21 periods and then dividing by the sum of volume for 21 periods.
Chaikin Money Flow has two weaknesses:
1. The indicator does not account for Gaps.
2. CMF has a tendency to "bark twice" - as with a simple moving average (unusually high or low data affects the indicator on the day it is added and the day it is dropped from the indicator period). The Twiggs Money Flow addresses these failings.
Trading Signals
A positive Chaikin Money Flow signals accumulation, while distribution is signaled by the indicator line below zero. The higher the reading (above or below zero), the stronger the signal.
Go long if a breakout above resistance is supported by Chaikin Money Flow above zero.
Go short if a breakout below support is confirmed by negative Chaikin Money Flow.
Divergences also provide good signals:
Go long on a bullish divergence.
Go short on a bearish divergence.
Permission to reproduce material on Chaikin Money Flow indicator is conditional upon displaying a hyperlink to http://www.incrediblecharts.com/technical/chaikin_money_flow.htm on your website.
