Forex Technical Analysis Articles - Volume based indicators - Chaikin Money Flow

Technical Analysis

1. Introduction

2. Function

3. Setting Up A Long Term Ex.

4. First Signals

5. Second Half of 2004

6. End of 2004 Focus

7. Sideways Movement

8. Example Conclusion

9. Short Term Look at Mid 2006

10. Look at 2006 Part II

The Chaikin Money Flow (CMF) indicator was developed by Marc Chaikin to create an oscillating indicator for his earlier, cumulative indicator Accumulation/Distribution. Both indicators measure the degree to which money is flowing into or out of a security or currency. Chaikin created these indicators to expand and improve on an earlier volume indicator, On Balance Volume.

On Balance Volume (OBV) compares a currency pair's closing price with its previous day's close and either adds or subtracts the volume to a cumulative total, if the pair is up or down respectively. Accumulation/Distribution (A/D) altered the parameters of OBV by using the mean price, the midpoint between the periods high and low, to decide whether volume for that period was being accumulated (bought) or distributed (sold). After categorizing the period either as accumulation or distribution A/D then adds or subtracts volume based on the degree to which the pair closed above or below its open. The main difference between Chaikin’s two volume indicators is that Accumulation/Distribution is a cumulative running total while Chaikin Money Flow oscillates around a zero line.

Chaikin Money Flow

The Chaikin Money Flow indicater as seen in VT Trader.

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Table of Contents

1. Introduction
Chaikin Money Flow is an oscillating version of an earlier cumulative indicator - Accumulation/Distribution. It is designed to measure the volume of money flowing into and out of a particular currency pair.

2. Function
Chaikin's Money Flow's main function and uses are explained.

3. Setting Up A Long Term Ex.
The analysis in the next 5 pages focus on a long term look of the EUR/JPY pair and how to use CMF to interpret its movements.

4. First Signals
We use CMF's signals to examine a buy signal, and examples of accumulation and distribution.

5. Second Half of 2004
The long term view of the EUR/JPY continues with a look at the pairs movements in the second half of 2004.

6. End of 2004 Focus
We return to looking at specific entries and exits for this three month period..

7. Sideways Movement
We continue following our pair on the dialy chart to become familiar with the working of CMF.

8. Example Conclusion
We point out the general trends and interesting highlights that CMF is able to tell us from Aug. 2005 through Sept. 2006.

9. Short Term Look at Mid 2006
AFter studying this pair for a two year period, it is interesting to get a short-term look at a period of several months to compare.

10. Look at 2006 Part II
We continue to look at a shorter term look the EUR/JPY in a 4H charts here and conclude our article on Chaikin Money Flow.