Chaikin Money Flow Indicator Guideline
Chaikin money flow Indicator MT4 is a MetaTrader 4 indicator for Forex trading that highlights money flow phases in MT5 charts. In fact, it aims to gauge the money flow over a specific period of time by combining the price and volume data. Consequently, Forex traders can get insights into whether investors are accumulating the trading instrument by purchasing or distributing it by selling. Then, they may estimate price changes based on a shift of the money flow movement. Thus, the Chaikin money flow indicator for MT5 enables crypto chartists to detect price reversals prematurely. Besides, it works with all forex pairs, cryptocurrencies, and all timeframes. In short, this indicator is useful to catch the money flow evolution in order to get confirmation and reversal signals on the Tradingview platform. Also, we will understand the Chaikin Money Flow strategy of CMF divergence during this study.
Chaikin Money Flow Indicator
What is chaikin money flow indicator ?
Chaikin Money Flow Indicator is based that the smaller the distance between close and high prices, the stronger is the accumulation. Contrarily, the slighter the space between close and low prices, the stronger is the distribution. Moreover, Forex traders should consider volumes before exchanging financial assets. Because high trading volumes imply that bulls and bears have an increasing interest in the considered trading instrument. Whereas low transaction volumes imply a lack of interest in that considered financial asset.
That money flow strategy was developed by the famous stockbroker Marc Chaikin to measure the market oscillation. However, the movement should be confirmed on the price chart before initiating any position. Because a CMF divergence could occur. To clarify, we will explain this notion later in this lesson.
CMF indicator formula
We calculate the n-period Chaikin money flow following five steps:
- Computing the money flow multiplier:
the money flow multiplier (MFM) is calculated for each period as follows:
MFM = [ (Closing – Low) – (High – Closing) ] / [ (High – Low) ]
- Multiplying each multiplier by each period volume to get the money flow volume (MFV):
MFV = period multiplier x period volume
- Summing the n-period money flow volumes
- Aggregating the n-period trading volumes
- Dividing the sum of money flow volumes by the sum of trading volumes:
n-period Chaikin money flow = [ sum of n-period money flow Volumes ] / [ sum of n-period trading volumes ]
From these calculations, we notice the following:
- A money flow multiplier is comprised between -1 and 1.
- The multiplier is positive if the candle closes in the superior half of the high-low range. Alternatively, it is negative if it closes in the inferior half.
- When the closing price is equal to the high price, the multiplier will be equal to 1. Alternatively, it will equal -1 when the closing price is equal to the low price. Moreover, it is near-zero when the candle closes near the middle of its high-low range.
In short, money flow volumes are dependent on money flow multipliers. To explain, the higher the multiplier, the higher the money flow volume and vice versa. Thus, multipliers are adjusting trading volumes to reflect real market conditions.
Let us illustrate this through an example:
We will consider a 1-period CMF to get the multiplier directly on the chart Because a 1-period CMF is equivalent to the money flow multiplier.
How do you read the Chaikin money flow?
Chaikin money flow MT4 indicator estimates the overall buying/selling pressure for a specific time period. To clarify, that estimation is based on the sign of the indicator.
CMF oscillates around the zero line. When it jumps to the positive area, it suggests that the buying pressure is overwhelming. Consequently, this is an upward confirmation signal. In short, positive values suggest an upside move. But, a fall down to the negative area suggests that the selling pressure is overpowering. Hence, this is a downward confirmation signal. In short, negative values suggest a downside move.
Moreover, the Tradingview Chaikin money flow indicator is more accurate with long timeframes, Because it is a lagging indicator. Thus, scalpers have better use it with other indicators in order to get more reliable scalping signals.
Also, the default CMF period is 20. Yet, feel free to adjust it to your trading system.
CMF MT4 indicator is useful to judge the overall market strength with increased volumes. To explain, it stipulates that:
- The market is strong when prices close at the upper half of their daily range. That is to say when prices are increasing. To explain, the CMF value increases in this case. Hence, this represents an accumulation phase and a bull force.
- The market is weak when prices close at the lower half of their high/low range. In other words, when prices are decreasing. To clarify, the CMF value decreases in this situation. Thus, this represents a distribution phase and a bear tension.
A Chaikin money flow divergence occurs when the indicator evolution does not follow the price on MT5 charts. That is to say when the CMF line evolution and the price direction are not in the same direction. However, Forex traders perceive this as a strong signal. Because CMF divergence will not hold and the price movement will converge to the Chaikin money flow direction. To clarify, there are two cases:
- When the market is trending upside while the CMF line is trending downside, traders have better be ready for a bearish reversal. In other words, the market will follow the same downward direction as the CMF line in the near term. Consequently, a bearish reverse occurs after this transitory convergence.
- When the market is trending downside while the CMF line is trending upside, traders have better be ready for a bullish reversal. In other words, the market will follow the same upward direction as the CMF line as soon as possible. As a result, a bullish reverse occurs after this transitory convergence.
In conclusion, Chaikin money flow divergence is a transitory phase on MetaTrader charts. Just before the market reverses and starts following the CMF oscillator for MT5.
How do you use the Chaikin money flow indicator ?
Trade confirmations in the CMF direction
Tradingview CMF indicator is also useful to trade breakouts. In fact, it acts as a confirmation signal for breakouts of trendlines and/or support/resistance lines. Let us take an example where the price cuts a resistance line. If the Chaikin money flow MT4 indicator is oscillating above 1, then the bullish breakout is confirmed. Thus traders will consider entering a long position in this case Because it is very probable that the market will begin shifting upwards tracking the CMF direction.
Alternatively, when the market penetrates a support line and the Chaikin money flow MT5 indicator is oscillating below 1, then the bearish breakout is confirmed. Hence, traders will consider initiating a short trade in this case, Because it is very probable that the price will start driving downwards following the CMF direction.
In conclusion, Chaikin money flow is an MT5 indicator of tendency used to trade confirmations in the CMF direction.
Trade reversals with CMF divergence strategy
A Chaikin money flow divergence strategy between the market price and the CMF line reveals a lagging signal. Because this Tradingview indicator is a lagging one. In fact, this divergence may indicate an early signal about a probable reversion. Just before, the price and the indicator start to converge in the same direction. To explain, there are two major situations:
- Bearish divergence: Occurs when the market makes a new higher high, but the CMF Oscillator fails to reach its new higher high. We denote this early signal as a bearish divergence. To clarify, bear domination will probably occur next to it. Consequently, a bearish divergence alerts chartists about potential bearish reversals.
- Bullish divergence: Arises when the price makes a new lower low, but the CMF oscillator fails to reach its new lower low. We denote this premature signal as a bullish divergence. To explain, bull dominance will probably emerge next to it. Hence, a bullish divergence alerts traders about possible bullish reversals.
In conclusion, Chaikin money flow is a lagging indicator used to trade reversals through the CMF divergence strategy.
Download Chaikin Money Flow Indicator for MT4
Chaikin money flow Indicator for MT4 is a MetaTrader 4 indicator that informs you about buying/selling pressures in MT4 charts. This is correlated with where candles close in connection with their high/low ranges. From one part, if the candle closes in the range higher half, then there is a buying force. From another part, there is a selling force if it closes in its lower half in the MT4 chart.
To clarify, Chaikin Money Flow MT4 indicator fluctuation around its null value is the basic signal:
- First, the higher the CMF value, the stronger is the buying pressure.
- Second, the lower the CMF value, the stronger is the selling pressure.
Moreover, the buying pressure is stronger when:
- CMF value is above 0.1 for longer periods.
- CMF value is above 0.25 for shorter periods.
Download Chaikin Money Flow Indicator for MT5
Chaikin money flow indicator for MT5 is a MetaTrader 5 indicator that reports to you the accumulation/distribution phases in Mt5 charts. This is associated with where candlesticks close in reference to their high/low ranges. On the one hand, if the candlestick closes in the range higher half, then there is an accumulation phase. On the other hand, there is a distribution phase if it closes in its lower half in the MT5 chart.
To explain, Chaikin Money Flow MT5 indicator oscillation around its null value is the key indication:
- First, the higher the CMF value, the stronger is the accumulation phase.
- Second, the lower the CMF value, the stronger is the distribution phase.
Furthermore, the distribution phase is stronger when:
- CMF value is below (- 0.1) for longer periods.
- CMF value is below (-0.25) for shorter periods.
Download Chaikin Money Flow Indicator for Tradingview
Chaikin Money Flow indicator for Tradingview is a confirmation tool. It is useful to confirm the current trend direction. This momentum tool confirms whether the present movement will persist or not. To explain, the Chaikin Money Flow indicator for Tradingview stipulates the following:
- Upside continuation: Positive Chaikin Money Flow values may suggest that the market will continue its bullish move.
- Downside continuation: Negative Chaikin Money Flow values may suggest that the market will continue its bearish move on the Tradingview chart.
The Chaikin money flow indicator for Tradingview is a volume oscillator. Its evolution is dependent on the price action and trading volumes. Since they are the drivers of its calculation. The logic behind this technical MT5 tool is so simple. On the one hand, forex traders accumulate financial instruments by buying them. To explain, this implies bullish price movement. On the other hand, they distribute trading assets by selling them. To clarify, this suggests a bearish market move. So, this money flow tool quantifies shifts in buying and selling pressure in order to expect future price changes as trading chances. In conclusion, trading the trend with the CMF indicator is based on accumulation and distribution phases on the MT4 trading chart.