1. Theory – how to use the indicator
Developed by Marc Chaikin
This is an oscillator indicator, which measures the accumulation/distribution of money in and out of currency pairs. This indicator is based on the fact that the closer the closing price is to the price high, the more the currency pair accumulates. Also, the closer the closing price is to the price low, the greater the distribution of the currency pair.
This indicator is positive if the price consistently closes above the midpoint of the bar as the volume increases.
However, if the price is consistently below the midpoint of the bar and the volume is increasing, the indicator will be negative.
Technical Analysis of the Chaikin Oscillator
A crossover above zero signifies accumulation of the currency pair. Any value above +10 is a buy/bullish signal. A value above +20 indicates a strong uptrend market.
A zero line cross below zero means the distribution of the currency pair. Values below -10 are short/sell signals. A value below -20 means a strong downtrend market.
Trendline break with Chaikin’s money flow indicator
Use the money flow indicator to see trend line breaks, support/resistance levels It will break.if the price goes up trend lineForex traders should wait for a confirmation signal from indicator values below -10.
Forex traders should wait for a confirmation signal from the indicator value above +10 if the price breaks through the downtrend line.
A divergence between the money flow indicator and price often indicates a pending reversal of market direction. However, as with all divergences, it is best to wait for a confirmation signal before trading any divergence. A bullish divergence signal occurs when the Chaikin Money Flow indicator makes higher lows and price lowers.A bearish divergence occurs when price makes higher highs while the Chaikin Money Flow indicator makes lower highs. A signal is generated.
2. Practical examples
The Chaikin Oscillator or Volume Accumulation Oscillator consists of the difference between two exponential moving averages (usually 3 and 10 days) of the Accumulation Distribution Lines indicator and is used to check price movements or divergence of price movements. The Chaikin Oscillator is more accurate than the On Balance Volume Indicator.
- On Balance Volume: Adds all volume for the day if closing price is positive. Even if the stock closes 1 yen higher than his, if the stock falls below it subtracts all the trading volume for the day.
- Chaikin Oscillator: Considers the high, low and closing price relative to the average price to determine the appropriate volume ratio for the day.
The main purpose of the Chaikin Oscillator is to identify price trends and warn of impending price reversals. The Nasdaq 100 ETF QQQQ chart below shows these confirmation and divergence signals.
High #1 to High #2
Nasdaq 100 ETF QQQQ makes new highs and is usually a bullish sign. However, Chaikin Oscillator failed to reflect his QQQQ rise and made lower lows. This bearish divergence heralded an imminent price reversal.
High #2 to High #3
QQQQ made a significantly lower high. The Chaikin Oscillator confirmed QQQQ’s downtrend and also lowered its highs.
low #1 to low #2
The Nasdaq 100 hit new lows significantly while the Chaikin Oscillator hit new lows. This bullish divergence indicates that the previous downtrend may be over.
The Chaikin Oscillator is a volume-based technical indicator that helps confirm current price action or foretell future price reversals.Other technical indicators similar to Chaikin Oscillator are on balance volume indicator
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