Chaikin Money Flow

Chaikin Money Flow (CMF) Indicator
Chaikin money flow is a simple to use indicator for trend trading. Free download. A trend reversal detector that is perfect for all traders.

CATEGORIES: MT4, SIGNAL, INFORMATIONAL
Updated on: 26.10.2023

Marc Chaikin developed the Chaikin Money Flow (CMF) indicator to measure the money flow over a specific period – 21 days by default. It determines the flow of money by combining the volume and price. Traders can use the indicator to know whether the investors are accumulating an asset through buying or distributing by selling. By detecting a change in flow movement, the trader can anticipate price change and catch price reversal quite early. Chaikin Money Flow indicator for mt4 – download free can be used to trade any currency pair on any time frame.

How to Trade Using the Chaikin Money Flow Indicator
The indicator is based on the theory that the price closes on the upper half of the daily range when the market strength increases. Similarly, price consistently closing on the lower half of the daily range indicates dwindling market strength. Therefore, the indicator is designed to identify the market trend.

The indicator’s value increases when the asset crosses near the high of the trading session. It reduces when the close is near the low of the trading sessions.

The indicator is designed to oscillate between 1 and -1. When the value is in a positive area, the market is experiencing bull pressure. Similarly, the market is bear pressure if the price is in negative territory.

Now, how do you trade using the indicator?

Buy Signal Chaikin Money Flow
This indicator gives a bullish signal when the readings are above the zero line. This is an indication the market is strong, and you should be looking to buy. Additionally, the indicator value must increase with a price increase. A bullish signal is a sign of buying pressure which represents accumulation.

Sell Signal Chaikin Money Flow
Similarly, a negative value (below the zero line) indicates a weak market or bearish signal. Therefore, you should be looking to sell. The indicator value falls with a fall in prices. Selling pressure is a sign of distribution.

Chart Example

The above picture represents price movement for the EURO against the US dollar in a four-hour timeframe. The red circle shows price movement for indicator movement when the market is bearish. Note how the indicator value moves from the positive value to the negative as the price plummets. A closer look at the price chart shows that the EUR/USD candlesticks have closed near the session low. The indicator interprets and presents this data as falling values of the indicator, as shown in the picture.

Similarly, during an uptrend, the values of the indicator increases. Moreover, the session prices close near the session high hence the rising indicator line. In fact, the indicator line moves up to the highest values as the price approaches resistance levels. Note how the indicator crosses from the negative to the positive side, as shown on the green circle.