An n-periods volume weighted average of Chaikan’s Accumulation/Distribution indicator plotted as an oscillator.
Overview
The Chaikan Money Flow is based on the concept that accumulation occurs nearer the close price is to the high. Alternatively, distribution occurs nearer the close price is to the low. Plotted as an oscillator the CMF will be positive if price consistently closes above the midpoint with increasing volume;If price consistently closes below the bar’s midpoint with increasing volume the CMF will be negative.
Chaikan Money Flow plotted on a NZD/USD daily chart 4/10/2011
Source: VT Trader
Interpretation
Chaikin recommends using a value of 21 periods. Here are some signals provided by the CMF:
1. Zero line crossings: Readings above zero indicate the instrument is under accumulation and therefore bullish, while readings below zero indicate the instrument is experiencing distribution and therefore bearish. Chaikin considers a cross above +0.10 to indicate a buy signal (+0.25 is considered strong buying pressure and confirms the uptrend). A cross below -0.10 indicates a sell signal (-0.25 is considered strong selling pressure and confirms the down trend).
2. Divergences: These are reversal signals. As an oscillator, the CMF provides a buy signal when price makes a lower low while the CMF makes a higher low. A sell signal occurs when price makes a higher high while the CMF makes a lower high.
