Forex Technical Analysis Articles - Volume based indicators - Chaikin Money Flow 's Function and Calculation

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

Calculation

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. Since the last 21 periods are used the formula creates moving averages.

Function

Chaikin Money Flow says:

If a currency pair closes in the upper half of its trading range on a particular day and volume is strong, the pair is being accumulated.

If thepair closes in the lower half of its range on strong volume, the pair is being distributed.

The values of CMF can also be used to indicate buying and selling pressure:

Values that bounce between 0.1 and -0.1 and otherwise hang around the zero line are not strong enough to offer a bullish or bearish signal.

Values above 0.1 and below -0.1 are indicative of buying and selling pressure respectively.

Values above 0.25 and below -0.25 are indicative of strong buying and selling.

As with other indicators, Chaikin suggested looking for a divergence between the pricing action and the oscillator.

If a currency pair trends up while the CMF rolls over and heads down, the currency pair will very likely top out soon after.

On the other hand, if a currency pair trends down while the CMF bottoms out and begins to move up, the pair will very likely follow.

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