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Developed
by Marc Chaikin, the Chaikin Money Flow oscillator is calculated
from the periodic readings of the Accumulation/Distribution Line.
Accumulation/distribution line is one of the indicators using volume.
It is used to assess the cumulative flow of money into and out of
an instrument. As the price moves depend on supply and demand, it
follows the volume.
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 period's range. Likewise, selling pressure is evidenced by
increased volume and frequent closes in the lower half of the periodic
range.
Usage:
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.
The
indicator often warns of break-outs & provides useful trend
confirmation. When price is trading in a range, volume may indicate
in which direction a breakout is most likely to occur. Higher volume
at peaks means that an upward breakout is more likely. Higher volume
at troughs indicates that a downward breakout is more likely.
There
are three items that determine if an instrument is under accumulation
and the strength of the accumulation.
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