Chaikin Money Flow
Of all the many useful technical instruments, the Chaikin Money Flow is one that can offer an early
sign of an impending trend. Although Chaikin Money Flow can perform as a lagging indicator, soprice turns after it does, it would be prudent to give it some attention. A lot of these tools are onlyfounded on price momentum changes. The analysis of technical trends is formed inside the dealingrange and any chartists will be on the lookout for support and resistance tests in lots of formats.C
haikin Money Flow doesn’t behave this way.
Chaikin Money Flow is founded upon the study of trends in volume and whether it is buyers or sellers that are running trading activity. The ChaikinMoney Flow works by comparing the sum of the volume to
the price at close as well as the day’s
highs and lows to determine the number of deals on a certain stock. It was Marc Chaikin whodeveloped the Chaikin Money Flow. As a seasoned dealer he saw that trends in securities werenormally in an accumulation (buying) or distribution (selling) stage; however, these stages co
be seen on price charts.
The common accumulation / distribution (A/D) line was Marc Chaikin’s
This highlights the results of the day’s buying and selling activity.
It will either besellers or buyers that control a session and the A/D captures the essence of the control. A/D is amomentum oscillator and it shows which side is stronger on a daily basis by using volume flow.The result is normally a point within -1 (seller control) and +1 (buyer control). We can expand thisconcept across a number of days to establish the long-term trend which is the point that ChaikinMoney Flow can be used. Chaikin Money Flow is the result of a number of sessions (the movingaverage is normally calculated over 21 days) that are then divided by the total volume over thecorrelating time frame. This is a more complicated calculation, but like a lot of tough calculations,Chaikin Money Flow can now be done instantly online and mapped onto price charts.
How Chaikin Money Flow works in practice
Let’s assume that a rather bullish security has quite a high closing price still within the day’s range
and a rising volume and the signal is founded on this. If a security is now shut with a low closing
price inside its day’s range with a high volume this means the stock is weak.
There is pressure to sellonce a security has closed during the bottom half of the trading range of a time frame and buyingpressure once a security shuts in the top half of the range.
The exact number of the tool’s time
frame may be different according to the sensitivity and time constraints of investors.The very first bear signs come with aChaikin Money Flow below zero. A stock will be under
distribution conditions or remains under pressure to sell if the point is below zero. The amount of time the Chaikin Money Flow has been below zero is another potential bearish sign. Negative forlonger, the higher the possibility for greater pressure to sell or distribution. If the stock stays under