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Learn Chaikin Money Flow Indicator to make Money from Stock Market

Posted By On 4/29/2009 11:42:00 AM Under

1. A number of indicators are available to track the trend of market; however an indicator which has proved its reliability is Chaikin Money Flow Indicator. This indicator has been made by Marc Chaikin and is based on the Accumulation Distribution line (Accumulation Distribution tracks the relationship between price and volume and acts as a leading indicator of price movements and thus in turn track divergences). The benefit of Chaikin Money Flow Indicator is that it warns of breakouts and provides info related to trend confirmation.

2. Chaikin Money Flow indicator relies on info provided by watching the volumes as buying support is generally with increased volume and frequent closes in the top half of the daily range. Similarly selling pressure is coupled with increased volume and frequent closes in the lower half of the daily range.

3. However do not blindly accept this indicator results as it do nt cater for gaps and it is affected by unusually high or low data and thus the day these unusual results are added/dropped; reliability becomes low.

4. Chaikin Money Flow indicator if positive means that accumulation is going on and indicator below zero means distribution is in progress. Signal is directly proportional to the reading strength. as a strategy based on this signal one can go long if a breakout above resistance is supported by Chaikin Money Flow above zero and one can go short if a breakout below support is confirmed by its negative value.Chaikin Money Flow model default setting is 21 days.The several months positive value in this model provides excellent warning of the breakout.
Go long [L] on bullish triple divergence as indicated by figure 1
Go long [L] on break above the resistance level as indicated by figure 2.
5. One can overcome the shortcomings of Chaikin Money Flow Indicator with Twiggs Money Flow indicator which we will learn in subsequent post.
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