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Chaikin Money Flow (CMF)

The CMF is an indicator created by Marc Chaikin that compares buying pressure with selling pressure, revealing the interest of buyers and sellers for a security. It shows phases of accumulation and distribution, confirming the strength of a trend or signaling possible reversals.

On the left a candle whose close sits near the high, showing how the close location gives buying pressure. On the right the Chaikin Money Flow oscillating between positive and negative, with lines at plus and minus 0.25.
CMF compares buying and selling pressure over 21 periods; beyond plus or minus 0.25 the flow is extreme.

Formula: the money flow volume of a single period is ((( C-L ) - ( H-C )) / ( H-L )) * V, and the CMF is the sum of those values over n periods (21 by default) divided by the sum of the volume over the same periods.

Where: C = closing price, L = lowest price, H = highest price, V = volume. The result oscillates between -1 and +1. Interpretation: Positive CMF: greater buying pressure. Negative CMF: greater selling pressure.

It can be used by looking for divergences between CMF and price.

Bullish divergence: CMF marks new highs while price marks new lows. Bearish divergence: CMF marks new lows while price marks new highs.

Or it can be used by looking for peaks and depressions:

Readings above +0.25: money flowing in at an extreme rate, possible bullish excess. Readings below -0.25: money flowing out at an extreme rate, possible bearish excess. Values close to zero mean that buying and selling pressure are balanced.

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