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CMF

Chaikin Money Flow (CMF) is a technical indicator developed by Mark Chaikin that measures the strength of money flow (accumulation and distribution) in the market over a specific period.

To use the indicator, you need to use the ChaikinMoneyFlow class.

Description

Chaikin Money Flow (CMF) expands on the concept of the Accumulation/Distribution Line (A/D Line), focusing on a specific time period. The indicator measures money flow volume expressed as a percentage of total volume over the specified period.

CMF helps traders:

  • Determine the strength of buying and selling pressure
  • Identify accumulation (buying) and distribution (selling) trends
  • Detect divergences between price movement and money flow
  • Confirm the current trend or its weakness

The key idea of CMF is that in a strong upward trend, the closing price should be closer to the period's high, while in a strong downward trend, it should be closer to the period's low.

Parameters

The indicator has the following parameters:

  • Length - calculation period (standard value: 20-21 days)

Calculation

CMF calculation involves the following steps:

  1. Calculate Money Flow Multiplier for each period:

    Money Flow Multiplier = ((Close - Low) - (High - Close)) / (High - Low)

    If (High - Low) = 0, then Money Flow Multiplier = 0.

  2. Calculate Money Flow Volume for the period:

    Money Flow Volume = Money Flow Multiplier * Volume

  3. Calculate Chaikin Money Flow:

    CMF = Sum(Money Flow Volume over Length period) / Sum(Volume over Length period)

Interpretation

CMF oscillates around the zero line and is typically within the range of -1 to +1:

  • Positive CMF values (above zero):

    • Indicate buyer pressure (accumulation)
    • The higher the value, the stronger the buyer pressure
    • Particularly significant if sustained for a prolonged period

  • Negative CMF values (below zero):

    • Indicate seller pressure (distribution)
    • The lower the value, the stronger the seller pressure
    • Prolonged stay in the negative zone confirms a downward trend

  • Zero Line Crossing:

    • Crossing from bottom to top may indicate the start of an upward trend
    • Crossing from top to bottom may signal the beginning of a downward trend

  • Divergences:

    • Bullish Divergence: price declines while CMF rises (potential upward reversal)
    • Bearish Divergence: price rises while CMF falls (potential downward reversal)

  • Extreme Levels:

    • Values above +0.25 may indicate strong accumulation
    • Values below -0.25 may indicate strong distribution

indicator_chaikin_money_flow

See Also

ADL OBV ForceIndex MFI

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