Chaikin Money Flow (CMF) is a technical analysis oscillator that measures the volume of money flow into or out of a crypto asset over a specified period, typically 20 or 21 days. It assesses buying and selling pressure by correlating closing prices with the day’s trading range and volume. A positive CMF indicates accumulation (buying pressure), while a negative CMF suggests distribution (selling pressure).
Mechanism
The calculation begins by determining the Money Flow Multiplier for each period, which considers the closing price’s position within the high-low range. This multiplier is then applied to the period’s volume to calculate Money Flow Volume. The CMF is the sum of these Money Flow Volumes over the look-back period, divided by the total volume during that same period. This normalized sum oscillates between +1 and -1, providing a weighted volume measure.
Methodology
Crypto investors utilize CMF to confirm price trends, identify potential reversals, and assess market sentiment. A CMF consistently above zero supports bullish price action, whereas values below zero indicate bearish conditions. Divergences between price and CMF can signal impending trend changes. In smart trading systems, CMF can serve as a component in algorithmic decision-making, filtering trade signals based on underlying volume conviction or identifying periods of institutional accumulation.
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