Chaikin Analytics

The Chaikin Oscillator was developed in the 1970s.[6] The indicator is based upon the momentum of the Accumulation/Distribution (AD).[7] AD calculates the position of a stock's daily closing price as a fraction of the daily price range of the stock—a fraction that is multiplied by the daily volume in order to quantify the net accumulation or distribution of a stock. AD is expressed mathematically as:

${\displaystyle AD=cum{\frac {(C-L)-(H-C)}{(H-L)}}\times V\!\,}$ or ${\displaystyle AD=cum{\frac {2C-(H+L)}{(H-L)}}\times V\!\,}$

where "AD" represents the Accumulation/Distribution cumulative total running line, "cum" is an instructive abbreviation meaning "calculate a cumulative total running line", "C" is the daily closing price, "H" is the daily high price, "L" is the daily low price, and "V" is the daily total volume.

The indicator is measured as the difference between the 3-day exponential moving average (EMA) of the AD to the 10-day EMA of the AD.[8][9] It signals when crossing above or below the zero line or when bullish/bearish departures take place. These signals anticipate the change in direction of the AD. Stock analysts observe a Chaikin Oscillator graph to look for the signal to buy or sell a stock.[10]

Chaikin Money Flow (also referred to as CMF) is one of the metrics taken into account by the Chaikin Power Gauging System. CMF tracks cash flow volumes over a fixed period, usually around 20 days.[8] The indicator oscillates above and below the zero line which indicates a bullish or bearish trend.[11] The indicator is also used to calculate Chaikin’s Accumulation/Distribution (AD).[12]

Chaikin Money Flow is derived from foundational trading principles; gauging buying support and/or selling pressure. Buying support is typically indicated by increased trade volume and repeated closes in the top half of the daily range, while selling pressure is indicated by increased trade volume and recurrent closes in the lower half of the daily range. Rising prices often accompany buying support and decreasing prices usually characterize selling pressure. The result provides insight into cash flow into or out of a stock.[13][14]

To determine the CMF one must first determine the Close Location Value (CLV) as follows:

${\displaystyle CLV={\frac {(close_{1}-low_{1})-(high_{1}-close_{1})}{(high_{1}-low_{1})}}\!\,}$ or ${\displaystyle CLV={\frac {2close_{1}-(high_{1}+low_{1})}{(high_{1}-low_{1})}}\!\,}$

The next step is to take the CLV and determine the CMF, as follows:[14]

${\displaystyle CMF={\frac {\sum _{t=20}^{t}CLV_{t}\times volume_{t}}{\sum _{t=20}^{t}(vol_{t})}}\!\,}$