Forex Chaikin Money Flow

The Chaikin Money Flow (CMF) indicator was developed by Marc Chaikin to create an oscillating indicator for his earlier, cumulative indicator Accumulation/Distribution. Both indicators measure the degree to which money is flowing into or out of a security or currency. Chaikin created these indicators to expand and improve on an earlier volume indicator, On Balance Volume.
On Balance Volume (OBV) compares a currency pair's closing price with its previous day's close and either adds or subtracts the volume to a cumulative total, if the pair is up or down respectively. Accumulation/Distribution (A/D) altered the parameters of OBV by using the mean price, the midpoint between the periods high and low, to decide whether volume for that period was being accumulated (bought) or distributed (sold). After categorizing the period either as accumulation or distribution A/D then adds or subtracts volume based on the degree to which the pair closed above or below its open. The main difference between Chaikin’s two volume indicators is that Accumulation/Distribution is a cumulative running total while Chaikin Money Flow oscillates around a zero line.



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.

----- SBJ ----- by: cmsFX --------