Chaikin Money Flow Indicator MT4 Download 2021

Chaikin Money Flow Indicator – Essential tutorial || What is? How to use it? How to calculate? Download for free our modified indicator with slope.

At the end of this article, you will be able to download our free copy of Chaikin Money Flow for MetaTrader4!

The Chaikin Money Flow Indicator is a market sentiment indicator designed to measure the difference between upward and downward price movements. It was developed by Marc Chaikin, an American investor, and trader who has worked with Charles Dow on the Dow Jones Industrial Average. 

The CMF is calculated as (total buying volume – total selling volume) / (total number of shares traded). If the difference is positive, it indicates that more money is flowing into the stock than out, which can be interpreted as bullish sentiment for stocks in general. 

Conversely, if the difference is negative, it indicates that more money is flowing into cash than out, which can be interpreted as bearish sentiment for stocks in general.

These indicators form the basis for developing the classic Distribution Accumulation line, while the indicator summarizes the cash flow for a specified period.

The standard period is 21 periods; many traders use it on weekly charts.

What is Chaikin Money Flow?

The Chaikin Money Flow (CMF) is a volume-weighted average of accumulation and distribution over time, created by Marc Chaiken.

The CMF considers both short-term increases in investments and long-term ones to give an accurate representation of how much money flows into or out of your portfolio at any given moment so that you can see what’s happening with trends before they happen!

CMF duration is usually around 21 days. But you can also look at Chaikin Money Flow. This helps you know if people are investing in stocks or not. If the prices get close to their high, this means that people have been buying a lot of stocks recently and might continue to buy more.

When the market is in a downtrend, it will eventually close below its lows. That is, when investors sold stock at a higher price than they paid for it in the past, excess cash was brought in. This means that more money has been flowing out of stocks than into them at any one moment – which makes sense because “buyers are few and far between.”

A negative Chikin Money Flow is generated when the price action consistently closes below its midpoint on increasing volumes.

How do you use the Chaikin Volatility Indicator?

The Chaikin Money Flow indicates whether investors are accumulating or giving up money. Flow changes can help traders catch trend reversals more rapidly since they somewhat anticipate prices.

The indicator swings above and below the zero lines, much as most oscillating indicators do. You may also search for crosses above or below the zero line to discover changes in cash flow on the graph.

Chaikin money flow indicator chart example

The CMF Indicator, even though it varies between 1 and +1, seldom approaches these values.

The Money Flow Multiplier, the center point of this indicator, ranges from -0.50 to 0.50, with ZERO serving as the middle line. The volume depends just on the Money Flow Multiplier because it is its focal point.

Chaikin money flow indicator with histogram for mt

When the closing price is more than half of the daily range, it assumes positive values (cumulative phase). When the closing price falls below half of the daily range (presence of a distribution phase), it takes negative values.

When the closure equals the maximum or minimum, it will be equal to 1.

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This oscillator determines the degree of pressure that buyers or sellers apply. When combined with high trading volumes, these pressures (both buying and selling) are even more powerful.

Let’s see what the classic strategies that use this indicator are

Identification and confirmation of the trend

During an uptrend, the CMF Indicator must: a) stay above its equilibrium line and b) rise in tandem with price increases during an upward trend. If the indicator does not track the upswing, divergences may develop (with the indicator showing that customers are weakening).

During a downward trend, the CMF Indicator must: a) stay below its equilibrium line and b) fall in tandem with price movements. Bullish divergences may form if the indicator does not track the negative market movement (with sellers’ strength decreasing).

CMF indicator during and upward trend with rise line with prices

Crossings above/below zero line

According to this theory, a positive CMF value (greater than zero) suggests an improving trend, whereas a negative value indicates a deterioration. 

This is true whether or not the market is in a downtrend. As previously said, this signal becomes even more reliable when accompanied by high trading volumes.

This is not the most effective technique, and it runs the danger of generating a lot of false positives. Setting the bullish threshold at +0.05 and the bullish limit at -0.05 is far preferable. We don’t care about the crosses signal since we are not interested in trading the indicator itself.

Trendline Breakouts

When the prices break an upward trendline, you can trade the breakout when the Chaikin Money Flow rises above zero.

Chaikin money flow breakout confirmation when line crosses zero

Rising/falling divergences

The CMF, like most oscillators, may also provide helpful indications via divergences. Consider a chart where price activity displays two peaks in a specific direction (upward or downward).

Assume that the CMF chart indicates two peaks in the opposite direction (downward or upward).

In this example, the price trend may be weakening, and a reversal is expected soon.

In the chart the price creates new high while CMF decrease

How is Chaikin Money Flow calculated?

The CMF is a “derived” indicator since Accumulation/Distribution (A/D) is used for its calculation.

In particular, the oscillator measures the difference between the upward pressure, calculated as the difference between the closing price (C) and the minimum price (L), and the downward pressure, calculated as the difference between the maximum price (H) and the closing price (C).

The whole is then weighted for the volumes that occurred during the period (V) and the daily range (H-L).

The formula is as follows:

((( C-L ) – (H-C )) /(H-L )) * V

In more detail, to calculate the Chaikin Money Flow, we must:

  1. Calculate the multiplier of the Money Flow Multiplier for each period [(Close – Minimum) – (Maximum – Close)] /(Maximum – Minimum)
  2. Calculate the Money Flow Volume by multiplying the volume of each period by the Money Flow Multiplier
  3. Add on the one hand the Money Flow Volume of each period and on the other hand the volumes of each period
  4. Finally, the Sum of Money Flow Volume is divided by the Sum of the total volume of the periods.

The formula, in Metastock format, for calculating the 21-period Chaikin Money Flow is as follows:

sum(((( C-L ) – (H-C )) /(H-L )) * V,21) / sum(V,21)CMF

Our free Custom Chaikin indicator for TradeStation and MultiCharts

This is our custom indicator coded in EasyLanguage for TradeStation and MultiCharts. You can download it for free.

We modified the standard indicator. Firstly, we add two moving averages (7 and 21 periods) to determine the trend direction.

Moreover, we use the Slope Moving Average to determine the change in direction. You have to “slope” the Chaikin Money Flow to decide whether it’s increasing or decreasing.

We could filter the reversal by setting the cross signal below zero and a little below zero.

Custom FSS Chaikin money flow for tradestation and multicharts

We don’t create a strategy because CMF should not be used as an entry-signal indicator.

It would help if you didn’t use this indicator in short timeframes because the noise is too high.

This is the code of our Custom SHOW ME Indicator for TradeStation and MultiCharts.

Tradestation easylanguage code tutorial cmf indicator part
Tradestation easylanguage code tutorial cmf indicator part

Q&A

I would like to know how we can identify buying and selling pressure.
When the indicator moves below zero, we are in the selling pressure area and vice versa above zero.

What is the Money Flow Multiplier and the Money Flow Volume?
Money Flow Multiplier and Money Flow Volume are the variables used in the calculations of the Chaikin oscillator.

Is it identical to the Money Flow Index indicator?
No, the Money Flow Index, also commonly called MFI, is an oscillator that uses price and volume to measure the buying and selling pressures.

You wrote that you don’t like using this indicator to generate trade signals.
I have used it many times to find sell signals in the gold market.

We don’t like to use this technical analysis indicator alone. It generates too many false signals, and the stop losses increase.
It is excellent for doing a weekly timeframe analysis, but it must be associated with some other indicators to operate.
If you don’t want to use another indicator, you can associate it with price action patterns.

Resources:

WIKIPEDIA

Free Download MT4 Chaikin Histogram Indicator 

This is our custom indicator coded in MQL for MetaTrader 4.

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Disclaimer this is not a financial advice.