Chaikin Money Flow
This indicator incorporates the volume to inform the market trend. A warning system (chart, SMS and e-mail) is incorporated for warning when a certain level is exceeded.
Developed by Marc Chaikin, Chaikin Money Flow (CMF) measures the amount of Money Flow Volume (MFV) over a specific period. Money Flow Volume forms the basis for the Accumulation Distribution Line. Instead of a cumulative total of Money Flow Volume, Chaikin Money Flow simply sums Money Flow Volume for a specific look-back period. The resulting indicator fluctuates above/below the zero line just like an oscillator.
Money Flow Multiplier (MFM)= ( (CLOSE(i)-LOW(i))-(HIGH(i)-CLOSE(i)) ) / (HIGH(i)-LOW(i))
MFV(i)= MFM(i) * VOLUME(i)CMF(n)= sum(MFV, n) / sum(Vol, n)
Each period's Money Flow Volume depends on the Money Flow Multiplier. This multiplier is positive when the close is in the upper half of the period's high-low range and negative when the close is in the lower half. The multiplier equals 1 when the close equals the high and -1 when the close equals the low. In this way, the multiplier adjusts the amount of volume that ends up in Money Flow Volume. Volume in effect is reduced unless the Money Flow Multiplier is at its extremes (+1 or -1).
CMF provides three types of typical signals:
- Values above zero indicate accumulation line. Values below zero indicate distribution one (see indicator A/D).
- The time that the indicator is in one of those positions.
- The value reached above or below the zero line.
Chaikin recommended n=21 and stated that ...
- Readings between 0 and 0.10 (-0.10) indicate uptrend (bearish) weak.
- Readings > 0.25 (<-0.25) indicate uptrend (bearish) strong.
- "Period calc" numbers of bars to calculate.
- "EMA signal" EMA smoothed signal line.
- "Alert level" value to be set by the user to emit warning sound when is passed and send email or SMS.
- "Alert mode": NoW = no warning (only alert in chart), e-mail, SMS, AllW= e-mail and SMS.
- Volume type: VOLUME_TICK / VOLUME_REAL.
The user defines a level, for example 0.1. The indicator alerts you with a warning message on the screen when this value is exceeded. The user can also choose an e-mail or SMS whenever MetaTrader 5 is set.
Chaikin Money Flow can be used to define a general buying or selling bias simply with positive or negative values. The indicator oscillates above/below the zero line. Generally, buying pressure is stronger when the indicator is positive and selling pressure is strong when the indicator is negative.
While this zero line cross seems simple enough, the reality is much choppier. Chaikin Money Flow sometimes only briefly crosses the zero line with a move that turns the indicator barely positive or negative. There is no follow through and this zero line cross ends up becoming a whipsaw (bad signal). Chartists can filter these signals with buffers by setting the bullish threshold a little above zero (+.05) and the bearish threshold a little below zero (-.05). These thresholds will not entirely eliminate bad signals, but can help reduce whipsaws and filter out weaker signals.