Chaikin Money Flow
A bounded oscillator that summarizes buying and selling pressure over a fixed lookback, using the same money flow logic as the A/D Line.
Description
Chaikin Money Flow, developed by Marc Chaikin, converts the A/D Line’s cumulative calculation into a bounded, fixed-period oscillator. Rather than accumulating indefinitely, CMF calculates money flow over a rolling window (typically 20 periods) and expresses the result as a ratio. This makes it easier to compare readings across different time periods and instruments.
How It Works
Money Flow Multiplier = [(close − low) − (high − close)] / (high − low). Money Flow Volume = Multiplier × volume. CMF = sum of Money Flow Volume over N periods / sum of total volume over N periods. Default: 20 periods. Result ranges roughly from −1 to +1, though extreme values are uncommon.
How to Read It
CMF above zero indicates net accumulation (buying pressure exceeds selling over the period). Below zero indicates net distribution. A reading above +0.25 is considered strong buying pressure; below −0.25 is strong selling. Zero-line crossovers signal a shift in money flow direction. Divergence between CMF and price (CMF failing to confirm a new price high) warns of deteriorating accumulation.
Common Uses
- Confirming breakouts with volume-based money flow
- Zero-line crossovers as directional signals
- Divergence analysis at price extremes
- Assessing whether a trend has accumulation or distribution behind it
Caveats
CMF is sensitive to period selection — a 10-period CMF behaves very differently from a 20-period version. Like the A/D Line, it is distorted by gaps and by closes consistently near the midpoint of the range. It is most reliable on liquid instruments with clean, representative volume data. Should be used as confirmation of price action and trend analysis rather than a primary entry trigger.