Chaikin Money Flow (CMF)

⚡ What is it?

Chaikin Money Flow (CMF) is a technical analysis indicator that measures the buying and selling pressure of an asset over a specific period of time. It’s based on both price and volume, giving a deeper look at the strength behind price movements. Developed by Marc Chaikin, CMF helps traders see if money is flowing into (buying) or out of (selling) a market.

⚙️ How it works

CMF calculates a value between -1 and +1.

• A positive CMF value suggests buying pressure (accumulation).

• A negative CMF value indicates selling pressure (distribution).

The calculation uses the Accumulation/Distribution Line and averages it over a set period (commonly 20 or 21 periods).

In simple terms:

• If prices close near the high of the period and volume is strong → buying pressure.

• If prices close near the low and volume is strong → selling pressure.

📖 How to read it

• Above 0: Buying pressure dominates.

• Below 0: Selling pressure dominates.

• Crossing 0: Potential shift in market sentiment.

Higher CMF readings suggest strong bullish moves, while lower readings may warn of bearish trends.

⚙️ Best settings

The default setting is 20 or 21 periods, but it can be adjusted:

• Shorter periods (10–15) = faster, more signals (good for active traders).

• Longer periods (30+) = smoother, stronger trend confirmation (good for swing traders).

Always test different periods depending on your trading style and market conditions.

🛠️ How to use it in a strategy

✅ Trend Confirmation

• If price is rising and CMF is above 0, it confirms the uptrend.

• If price is falling and CMF is below 0, it confirms the downtrend.

✅ Divergences

• If the price makes a new high, but CMF does not, it may signal weakening buying pressure (potential reversal).

• If the price makes a new low, but CMF does not, it may suggest weakening selling pressure.

✅ Breakout Confirmation Use CMF to validate breakouts. Example: If price breaks resistance and CMF spikes above 0, the breakout has strong buying support.

❌ Common mistakes

❌ Relying only on CMF signals without looking at overall market trends. ❌ Ignoring volume – CMF is volume-sensitive, so sudden volume spikes can cause false signals. ❌ Trading every zero-line cross without confirmation — context matters!

🌟 Final thoughts

Chaikin Money Flow is a fantastic tool for understanding whether "smart money" is entering or exiting a market. But like any indicator, it should not be used alone. Combine CMF with trendlines, moving averages, or candlestick patterns for stronger setups. Always trade with a plan, not just an indicator! 🎯