|
Chaikin Money Flow
Description
Like the popular Chaikin A/D Oscillator developed by Marc Chaikin,
the Chaikin Money Flow indicator is based on the
Accumulation/Distribution line. It is created by summing the values
of the Accumulation/Distribution Line for 21 periods and then
dividing by a 21 period sum of the volume.
sum(((( C-L )-( H-C )) / ( H-L ))*V,21
) / sum(V,21)
Interpretation
The interpretation of the Chaikin Money Flow indicator is based on
the assumption that market strength is usually accompanied by prices
closing in the upper half of their daily range with increasing
volume. Likewise, market weakness is usually accompanied by prices
closing in the lower half of their daily range with increasing
volume.
If prices consistently close in the upper half of their daily
high/low range on increased volume, then the indicator will be
positive (i.e., above the zero line). This indicates that the market
is strong. Conversely, if prices consistently close in the lower
half of their daily high/low range on increased volume, then the
indicator will be negative (i.e., below the zero line). This
indicates that the market is weak.
The Chaikin Money Flow indicator provides excellent confirmation
signals of trendline and support/resistance breakouts. For example,
if a security's prices have recently penetrated a downward sloping
trendline (signalling a potential trend reversal), you may want to
wait for further confirmation by allowing the Chaikin Money Flow
indicator to cross above the zero line. This may indicate an overall
shift from a downtrend to a new uptrend.
A divergence between the Chaikin Money Flow indicator and prices are
also significant. For example, if the most recent peak of the
indicator is lower than it's prior peak, yet prices are continuing
upward, this may indicate weakness.
|
