Chaikins Money Flow Analysis and Money Flow Trading Signals
Developed by Marc Chaikin
This an oscillator which measure the Accumulation/distribution of money that is flowing into and out of indices.
The trading indicator is based on the fact that the nearer the closing price is to the high of the price, the more the accumulation of indices.
Also the nearer the closing price is to the low of the market price, the more the distribution of indices.
Chaikin Money Flow will be positive if price consistently closes above the bar's midpoint with increasing volume.
However, if price consistently closes below the bar's mid point with increasing volume the trading indicator will be negative.
Indices Analysis & How to Generate Signals
Buy Trading Signal
A crossover of above zero signifies accumulation of indices. A value of above +10 is a buy/bullish trading signal. Values above +20 signify a strong upward trending market.
Buy Trading Signal
Sell Trade Signal
A Zero line cross of below zero signifies distribution of indices. A value of below -10 is a short/sell trade signal. Values below -20 signify a strong downwards trending market.
Sell Trade Signal
Indices Trend Line break with Chaikin’s money Flow
The money flow can be used to confirm trend-line breaks out or support/resistance area breaks out.
If the price breaks an upward trend-line, traders should then wait for a confirmation signal from the indicator values of below -10.
Indices Trend Line Break - Sell Trading Signal
If price breaks an downward trend-line, traders should then wait for a confirmation signal from trading indicator readings of above +10.
Indices Trend Line Break - Buy Signal
Divergence Trading
A divergence between this technical indicator & price often signals a pending reversal in market direction. However as with all divergences its best to wait for confirmation signal before trading the divergence.
A bullish divergence signal occurs when price makes a lower low while the Chaikins Money Flow makes a higher low.
A bearish divergence signal occurs when price makes a higher high while the Chaikins Money Flow makes a lower high.
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