The Chaikin Money Flow, also known as CMF, is an Indicator that measures the amount of Money Flow Volume over a specific Period. This Indicator, add the values of this Flow during the Period chosen, for then divide the result for the sum of the Voumes of the daily trades during the Period chose.
– The Standard Period is 21 or 20 days.
– The Chaikin Money Flow oscillates above/below the Zero Line, between the values -1 and +1; to be more specific, it oscillates between the values of -0.50 and +0.50 for the vast majority of the time.
How to Interpret the Signals from the Chaikin Money Flow
– General Interpretation: the CMF has positive values when there is an Uptrend; whereas the CMF has negative values when there is a Downtrend.
– Zero Line: When the CMF breaks above (Goes from below to above) the Zero Line and goes near the value (Or Higher) of +0,50 , it’s a signal of Rise in the Prices. Whereas, when the CMF breaks below (Goes from above to below) the Zero Line and goes near the value (Or Lower) of -0,50 , it’s a signal of Decline in the Prices.
– The CMF is very useful to confirm a break of a Support or Resistance, or to confirm a Reversal in the Trend: during a Downtrend in the Prices, if occurs a break of a Resistance while the CMF breaks above (Goes from below to above) the Zero Line, it’s a signal of Reversal of the current Trend (From Downtrend to Uptrend). Whereas, if during an Uptrend in the Prices it occurs a break of a Support while the CMF breaks below (Goes from above to below) the Zero Line, it’s a signal of Reversal of the current Trend (From Uptrend to Downtrend).