Chaikin Money Flow CMF
Technical Indicator
The indicator was developed by Marc Chaikin, a Wall Street analyst who wanted to create a tool that would help investors identify buy and sell signals based on the interrelationship between price and volume. CMF is calculated using the following formula:
CMF = Sum [((C - L) - (H - C)) / (H - L) x V] / SumV
Where:
C = the closing price
L = the low of the day
H = the high of the day
V = the volume
To calculate the CMF, traders sum up the price and volume data, and then divide the sum by the total volume. The resulting number is plotted on a scale between -1 and 1.
The CMF indicator is considered bullish when it is above zero, indicating that more money is flowing into the asset than out of it. Conversely, the indicator is considered bearish when it is below zero, indicating that more money is flowing out of the asset than into it.
Traders can use the CMF indicator to identify potential trend reversals, as well as to confirm buy and sell signals generated by other technical indicators. The CMF can also be used to identify potential divergence between the price and volume data, which can be an early warning sign of a potential trend reversal.
Overall, the CMF is a useful tool for traders who are looking to gain a deeper understanding of the underlying buying and selling pressure that is driving an asset*s price movements.
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