Famous Stock Analyst Marc Chaikin created Chaikin Money Flow which measures the amount of Money Flow Volume over a specific period. The Chaikin Money Flow oscillator is calculated from the daily readings of the Accumulation/Distribution Line. Chaikin believed that buying and selling pressures could be determined by where a period closes in relation to its high/low range. If the period closes in the upper half of the range, then buying pressure is higher and if the period closes in the lower half of the range, then selling pressure is higher.
The formula for Chaikin Money Flow is the cumulative total of the Accumulation/Distribution Values for 21 periods divided by the cumulative total of volume for 21 periods. The number of periods can be changed to best suit a particular security and time frame. The 21-day Chaikin Money Flow is a good representation of the buying and selling pressure for the past month. A month is long enough to filter out the random noise. By using a longer time frame, the indicator will be less volatile and be less prone to whipsaws. For weekly and monthly charts, a shorter time frame is usually suitable. Calculation:
There are basically Three steps to calculate Chaikin Money Flow. …show more content…
Selling pressure still has the edge in negative territory, even when there is a bullish divergence. This bullish divergence simply shows less selling pressure. It takes a move into positive territory to indicate actual buying pressure. Also if there is any type of gap in price, it won’t be picked up because the Money Flow Multiplier, which plays determines Money Flow Volume and therefore Chaikin Money Flow values, does not take into account the change in trading range between periods.and therefore Chaikin Money Flow and price will become out of synch. As an money flow oscillator, CMF can be used in conjunction with pure price oscillators, such as MACD or RSI. As with all indicators, Chaikin Money Flow should not be used as a stand-alone
The formula for Chaikin Money Flow is the cumulative total of the Accumulation/Distribution Values for 21 periods divided by the cumulative total of volume for 21 periods. The number of periods can be changed to best suit a particular security and time frame. The 21-day Chaikin Money Flow is a good representation of the buying and selling pressure for the past month. A month is long enough to filter out the random noise. By using a longer time frame, the indicator will be less volatile and be less prone to whipsaws. For weekly and monthly charts, a shorter time frame is usually suitable. Calculation:
There are basically Three steps to calculate Chaikin Money Flow. …show more content…
Selling pressure still has the edge in negative territory, even when there is a bullish divergence. This bullish divergence simply shows less selling pressure. It takes a move into positive territory to indicate actual buying pressure. Also if there is any type of gap in price, it won’t be picked up because the Money Flow Multiplier, which plays determines Money Flow Volume and therefore Chaikin Money Flow values, does not take into account the change in trading range between periods.and therefore Chaikin Money Flow and price will become out of synch. As an money flow oscillator, CMF can be used in conjunction with pure price oscillators, such as MACD or RSI. As with all indicators, Chaikin Money Flow should not be used as a stand-alone