Developed by Marc Chaikin, the Chaikin Money Flow(CMF) compares total volume to the closing price and the daily highs and lows to determine how many issues are bought and sold of a particular security. It is based upon the assumption that a bullish stock will have a relatively high close price within its daily range and have increasing volume.
An obvious bearish signal is when CMFis less than zero. A reading of less than zero indicates that a security is under selling pressure or experiencing distribution.
A second potentially bearish signal is the length of time that CMFhas remained less than zero. The longer it remains negative, the greater the evidence of sustained selling pressure or distribution. Extended periods below zero can indicate bearish sentiment towards the underlying security and downward pressure on the price is likely.
The third potentially bearish signal is the degree of selling pressure. This can be determined by the oscillator's absolute level. Readings on either side of the zero line or plus or minus 0.10 are usually not considered strong enough to warrant either a bullish or bearish signal. Once the indicator moves below -0.10, the degree selling pressure begins to warrant a bearish signal. Likewise, a move above +0.10 would be significant enough to warrant a bullish signal. Marc Chaikin considers a reading below -0.25 to be indicative of strong selling pressure. Conversely, a reading above +0.25 is considered to be indicative of strong buying pressure.
Calculation:
Inputs:
Period = 21
Indicates time period(the number of days for daily analysis, the number of weeks for weekly analysis, etc.).
Indicator Type: Market Strength