Related Tutorial On Technical Analysis

Most Volatile ShareRate of Change (ROC)Beta StocksChaikin Money Flow (CMF)
Average Directional Index (ADX)Accumulation Distribution Index (ADI)On Balance Volume (OBV)Bollinger Band
MACDVolumePivot PointMoving Average basics

Chaikin Money Flow Explained with Trading Strategy & Examples

Throughout our site in both tutorial and screener, if we have given maximum emphasis on a parameter after price then it is volume. Other indicators give leads but it is volume which gives stamp of approval to signal. Because of this reason various volume based indicators emerged and some of the prominent ones are Money Flow Index(MFI), On Balance Volume(OBV), Accumulation Distribution Index (ADI) and Chaikin Money Flow(CMF).

Chaikin Money Flow or CMF was developed by Mark Chaikin. His other significant contribution to technical analysis was Accumulation Distribution Line (ADL).

Greater details of price volume correlation include Volume precedes price, rising Volume in uptrend and price volume divergence is explained here. We recommend to read it together with CMF to have deeper understanding as some of the terms used in current article, is well explained there.

CMF is an indicator that tries to measure buying pressure versus selling pressure. Unlike OBV, it is much simpler to interpret as its value oscillates in positive or negative territory. Positive value signals Money flowing in or accumulation while negative value means money moving out of the stock. Value of CMF is calculated based on last n trading session typically 20 or 21, because of this it reflect most recent change in stock movement.

Chaikin Money Flow (CMF) is normally represented as a small chart below price chart as

CMF Calculation: For Simplicity CMF Calculation is split into three steps

a. Calculation For Money Flow Multiplier:
Money Flow Multiplier=[(Close-Low)-(High-Close)]/(High-Low)

b. Calculation For Money Flow Volume:
Money Flow Volume=Money Flow Multiplier(x)Volume for the Period

c. Calculation For CMF:
CMF 21 = Sum of Money Flow Volume for last 21 days / Sum of Volume of last 21 trading days

Though TopStockResearch uses 21 days period, Usage of 20 days period is also common among tech Analyst.

Interpretation

CMF Value Occurrence Interpretation Possible reasons /outcome
0.4 to 1.0 Rare Very Strong Buying Pressure
  • Smart Money investing
  • Accumulation
  • Strong Uptrend
0.05 to 0.40 occasionalStrong buying Pressure
  • Smart Money investing
  • Accumulation
  • Strong Uptrend
0 to 0.05 Common Some buying pressure
  • Aggressive traders enters
  • Conservative trade wait till the value crosses over 0.05
  • Choppiness
Cross over from negative to Positive RegularBullish signal
  • Trend Change
  • Bullish Signal
Cross over from Positive to negative RegularBearish signal
  • Trend Change
  • Bearish Signal
0 to - 0.05 Common Some Selling pressure
  • Aggressive traders enters
  • Conservative trade wait till the value crosses below - 0.05
  • Choppiness
-0.05 to -0.40 Occasional Strong Selling Pressure
  • Smart Money moving out
  • Distribution
  • Strong Down Trend
-0.4 to -1.0Rare Very Strong Selling Pressure
  • Smart Money moving out
  • Distribution
  • Strong Down Trend

1. It is important to highlight that just relying on CMF movement from negative territory to positive territory is itself not a complete signal. In choppy market you may get many such false signals.
2. Rather than absolute value, duration of +ve territory tells better about accumulation.
3. Momentum of CMF tells more than simply higher value.

Summary of CMF Interpretation

Ranging Market Rising CMF Positive Breakout Bullish Signal
Falling CMF Negative Breakout Bearish Signal
Up Trending Market Rising CMF Up Trend Confirmation Bullish Signal
Falling CMF Divergence, Reversal Warning to Bulls
Down Trend Falling CMF Down Trend Confirmation Bearish Signal
Rising CMF Divergence Warning to Bears
Cautions
1.Whipsaw: In a choppy market, too many false signal of zero line cross over.
2.Gaps: CMF value gets unreliable when there are big gaps.

Example of Chaikin Money Flow Used With Price Movement As Shown In State Bank Of India Chart

State Bank Of India Ltd Chart Showing Chaikin Money Flow(CMF)

Example of Chaikin Money Flow Bullish Divergence Shown In TATA Power Co Ltd Chart

TATA Power Co Ltd Chart Showing Chaikin Money Flow(CMF) Bullish Divergence

Our website provides also provides free Stock screening based on Different Bearish Candlestick Pattern. It can be found at below link:

Related Technical Stock Screener

Chaikin Money Flow (CMF)Bullish CMF Buying PressureBullish CMF Strong Buying PressureBullish CMF Very Strong Buying Pressure
Bullish CMF SignalBearish CMF Selling PressureBearish CMF Strong Selling PressureBearish CMF Very Strong Selling Pressure
Bearish CMF Signal   
Chaikin Money Flow (CMF)Bullish CMF Buying PressureBullish CMF Strong Buying PressureBullish CMF Very Strong Buying Pressure
Bullish CMF SignalBearish CMF Selling PressureBearish CMF Strong Selling PressureBearish CMF Very Strong Selling Pressure
Bearish CMF Signal   

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(All analysis is based on End of Trade day's Value. Expected time of update is between 5 to 5.30 PM exchange time Zone)

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