Chaikin Money Flow Indicators

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The Chaikin Money Flow (CMF) is an oscillator indicator that was developed by Marc Chaikin. He created this indicator to add to his earlier cumulative indicator. Chaikin Money Flow indicator is used to measure the degree to which money is flowing in or out of a currency over a given period of time. Instead of cumulative total of money flow volume, the Chaikin Money Flow basically sums up the Money Flow Volume for a stipulated period of time. Chaikin Money Flow usually oscillates around the zero line.

 

Calculation

Chaikin Money Flow = cumulative total of the Accumulation/Distribution values for 21 days / cumulative total of volume for 21 days

Money Flow Multiplier = [(Close - Low) - (High - Close)] / (High - Low)

Money Flow Volume = Money Flow Multiplier x Volume for the Period

 

Each period Money Flow Volume relies on the Money Flow Multiplier. The multiplier is +ve when the close is in the upper half of the period's high-low range. On the flip side, it is negative when the close is in the lower half. The multiplier equals to 1 when the close equals the high and on the other hand, it equals -1 when the close equals the low. What this means is that the multiplier adjusts the amount of volume that ends up in Money Flow Volume.

Chaikin Money Flow Function

Chaikin Money Flow states that;

 If a currency pair in Forex trading closes in the upper half of its trading range on a particular volume and day is strong then the pair is being accumulated

 If the pair closes in the lower half of its range on strong volume then the trading pair is being distributed.

 

Values of Chaikin Money Flow That are Used to Indicate Buy and Sell Pressure

 Values that bounce between 0.1 and -0.1 and as well hang around the zero line are not strong enough to offer a bearish or bullish signal.

 Values above 0.1 and below -0.1 are indicative of buying and selling pressure respectively.

 Values above 0.25 and below -0.25 are indicative of strong buying and selling.

 As the Chaikin Money Flow indicator turns up price keeps falling, this is a sign of divergence. When the indicator gets at the zero line it is a good opportunity to buy, in order to protect another winning position.

 The indicator oscillates around the zero line which does not help a trader know which way the trend should go. But once you create a firm market bottom, an upward trend in both price and Chaikin Money Flow appears.

Divergence between the Oscillator and Pricing Action

 If a currency pair trends up while the Chaikin Money Flow rolls over and heads down then the currency pair will very likely top out soon after.

 On the flip side, if a currency pair trends down while the Chaikin Money Flow bottoms out and begins to move up, then the pair will very likely follow.

Conclusion

 

Chaikin Money Flow is an oscillator that measures selling and buying pressures over a given period of time. Money flows though the bulls when Chaikin Money Flow is positive and bears when negative. Basically, selling pressure is stronger when the indicator is negative and buying pressure is stronger when the indicator is positive. As the rest of technical tools, Chaikin Money flow cannot used exclusively and has used in conjunction with other tools like Moving Averages Convergence and Divergence (MACD) or Relative Strength Index (RSI).

A Forex trader it is important to include Chaikin Money Flow indicator in your technical analysis of the Forex market for effective and efficient trading. If you utilize this indicator appropriately you can make huge profits from this market.