Chaikin Money Flow (CMF) is a volume-based indicator developed by Marc Chaikin. It measures the accumulation and distribution of money flow over a set period, typically 21 days, by combining price movement and volume. The CMF oscillates above and below a zero line, indicating whether buying or selling pressure is dominating the market. Positive values suggest accumulation (buying), while negative values suggest distribution (selling). It helps traders assess market strength and confirm trends or reversals.
Significance
- Tracks buying and selling pressure by combining price and volume.
- Confirms price trends when CMF aligns with price direction.
- Detects reversals through divergence between CMF and price.
- Identifies accumulation (positive CMF) and distribution (negative CMF).
- Useful with trend and momentum indicators for trade confirmation.
Indicator Components & Values
- CMF Line → Oscillates between +1 and -1, typically stays between +0.25 and -0.25.
- Zero Line → Key level for identifying buying (above 0) or selling (below 0) pressure.
- Money Flow Multiplier → Measures where price closes within the range of the day.
- Money Flow Volume → Multiplier × volume, used to calculate the CMF value.
- Lookback Period → Usually 21 days, but can be adjusted for sensitivity.
Trading Strategy
- Trend Confirmation → Go long when CMF is above 0 and price is rising; short when CMF is below 0 and price is falling.
- Divergence Strategy → Buy when price makes a lower low but CMF makes a higher low (bullish divergence), and sell on the opposite.
- Breakout Confirmation → Confirm breakouts when CMF supports the price move.
- CMF + Moving Average → Use CMF alongside a 50-MA or 200-MA to confirm overall trend.
- CMF + RSI → Combine with RSI to strengthen overbought or oversold signals.
