Analysis Of Chaikin Money Flow
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 …show more content…
The below example is based on 20 periods.
Step 1: Calculate the Money Flow Multiplier for each period.
Money Flow Multiplier = [(Close - Low) - (High - Close)] /(High - Low)
Step 2 : Multiply this value by the period's volume to find Money Flow Volume.
Money Flow Volume = Money Flow Multiplier x Volume for the Period
Step 3: Sum Money Flow Volume for the 20 periods and divide it by the 20 period sum of volume.
20-period CMF = 20-period Sum of Money Flow Volume / 20 period Sum of Volume Generally, Each period's MFV depends on Money Flow Multiplier. This multiplier is basically positive when the close is in the upper a half of the period's high-low range and negative when the close is in the lower half. The multiplier equals 1 when the close equals the high and -1 when the close equals the low. In this way the multiplier adjusts the amount of volume that ends up in Money Flow Volume. Volume is in effect reduced unless the Money Flow Multiplier is at its extremes (+1 or …show more content…
The indicator oscillates above/below the zero line. Generally, buying pressure is stronger when the indicator is positive and selling pressure is stronger when the indicator is negative.
While this zero line cross seems simple enough, the reality is much choppier. Chaikin Money Flow sometimes only briefly crosses the zero line with a move that turns the indicator barely positive or negative. There is no follow through and this zero line cross ends up becoming a whipsaw . Chartists can filter these signals with buffers by setting the bullish threshold a little above zero usually taken as +0.05 and the bearish threshold a little below zero that is -0.05. These thresholds will not entirely eliminate bad signals, but can help reduce whipsaws and filter out weaker signals.
Chaikin Money Flow is an oscillator that measures buying and selling pressure over a set period of time. At its most basic, money flow favors the bulls when CMF is positive and the bears when negative. Chartists looking for quicker money flow shifts can look for bullish and bearish