Name, Sometimes Called:
Chaikin Money Flow Oscillator
Sometimes called Chaikin Money Flow, Chaikin’s Money Flow
Oscillator, Chaikin’s Money Flow, or just Money Flow.
Also known as Volume Accumulation Oscillator or Chaikin Volume
Accumulation Percent. Sometimes abbreviated CMF or CVAP.
Do not confuse this TAI with the Chaikin Oscillator.
Brief Description:
This TAI compares today’s closing price to the
daily high-low range to determine the volume flowing into (or out
of) a security; it then compares today’s volume to the total
volume.
Definitions, Formulas:
This TAI compares today’s closing price to the
daily high-low range to determine today’s volume flowing into
(or out of) a security, and then compares this result to the total
volume. It is similar to the Chaikin
Oscillator. Both TAIs assume that strength in a security is
usually accompanied by (a) closing price in the upper half of its
high-low range and (b) by increasing volume. Likewise, weakness
is usually accompanied by (a) closing price in the lower half of
its daily range with (b) increasing volume. These assumptions are
embodied in the Accumulation-Distribution
Line, on which the Chaikin Money Flow Oscillator depends.
When there are more buyers than sellers for a given stock, it is
said to be under accumulation. When there are more sellers
than buyers, the stock is said to be under distribution.
The Accumulation-Distribution line provides a measure of this activity.
To create CMF, we sum the values of the Accumulation-Distribution
Line for n periods and then divide that sum by an n-period
sum of the volume.
To calculate the AD line, begin by selecting a period n.
We use n=21 days. Any time frame for which data (volume,
high, low, and closing price) are available can be used.
Next, calculate the Close Location Value or CLV:
CLV = [ ( C - L )-( H - C )] / ( H
- L )
where
C = the closing price for the day
H = the high price for the day
L = the low price for the day
Values for CLV range between plus one and minus one, with the center
of the range at zero.
Then calculate the day’s AD value:
AD = CLV*V
where
V = the day’s volume
The CMF is then calculated as:
Positive Development Calculation:
For this TAI, a new positive development (NPD)
occurs when CMF X+ 0; that is, when the Chaikin Money Flow Oscillator
line crosses over zero.
This TAI is no longer positive when the Chaikin Money Flow Oscillator
line crosses under zero; that is, when CMF X- 0.
If this TAI is still positive tomorrow, it will no longer be new,
but will be a cumulative positive development (CPD).
If this TAI was a new positive development (NPD)
yesterday, and is still positive today, then it becomes a cumulative
positive development (CPD).
History:
Developed by Marc Chaikin (177 E. 77th St., New York,
NY 10021), CMF is an outgrowth of the Accumulation-Distribution
Line TAI, which he also developed. Chaikin assumed that a price
move (either up or down) is more significant with increasing volume,
and devised indicators to measure such activity.
An article on this TAI appears in (Technical Analysis of) Stocks
& Commodities magazine for August 2000 (vol. 18, no. 8,
pp. 42-46). See http://store.traders.com/v14246chaikm.html
for a summary. The article is available for purchase on their web
site.
This chart shows the Chaikin Money Flow indicator in action. Remember,
this indicator uses volume as well as price. Large swings in volume
can affect the value of the indicator for the range of n.
|
