Hello to all. The number of people who want to trade in financial markets is increasing. This huge market now makes it possible to trade different currencies, stocks, commodities, cryptocurrencies, and other assets from all around the world. Do you know what the best part of this business is? - You don't have to wake up early in the morning and go to work, which means you become the boss of your own business. Another advantage that financial markets offer us is the ability to trade with a small amount of capital. Succeeding in such a global market depends on being able to perform the right technical and fundamental analysis. Technical analysis is the most widely known method that we must learn when we start trading for the first time. Technical indicators are an important part of technical analysis. The Chaikin Money Flow (CMF) Indicator will be the topic of today's article.
What is the Chaikin Money Flow (CMF) Indicator?
The Chaikin Money Flow (CMF) indicator, developed by Marc Chaikin in the 1980s, is a technical indicator used to measure the money flow volume derived from price movement and volume. We can also describe Chaikin Money Flow (CMF) as an oscillator-based technical analysis indicator used to measure buying and selling pressure on a security. In other words, this indicator determines the presence of money flowing into or out of a security by examining volume data.
The CMF indicator signals that when closing prices are in an uptrend, prices are expected to continue rising, indicating accumulation. Conversely, when in a downtrend, it supports prices continuing to fall, suggesting distribution. The 0 (zero) line in the indicator is of critical importance and provides information about the direction or magnitude of buying/selling pressure. A value above zero indicates buying pressure or positive money flow, while a value below zero indicates selling pressure, meaning negative money flow.
Is CMF a Good Indicator?
Yes, CMF is a very good indicator when used in the right context. It excels at confirming the conviction behind breakouts, trends, and reversals because it measures actual money flow instead of just price movement. A strong uptrend backed by positive and rising CMF is far more reliable than one with weak or negative CMF values. It also catches bearish and bullish divergences earlier than most volume indicators, giving timely warnings before price reverses. CMF works best on daily charts with the standard 20- or 21-period setting and performs especially well on stocks and indices with decent average volume. It is less useful on very low-volume securities or extremely short timeframes (under 15 minutes) where noise dominates. Combine it with price action or a simple moving average and CMF becomes one of the most practical volume-based tools available.
How is Chaikin Money Flow (CMF) Calculated?
The money flow volume is calculated by looking at how much
the closing price has changed compared to the previous trading day. The CMF
indicator takes a value between 0 and 1. When the indicator is above zero, it
indicates that prices are trending upwards, and buyers are dominant. When the
indicator is below zero, it indicates that prices are trending downwards, and
sellers are dominant. The indicator is calculated using price movement and
volume data, and the following formula is used to calculate the CMF indicator:
CMF = (20-day average money flow volume) / (20-day average
volume)
Here:
- CMF: Chaikin Money Flow indicator
- 20-day average money flow volume: The average money flow volume over a 20-day period
- 20-day average volume: The average volume over a 20-day period
The CMF oscillator can range from -1 to +1. A value of 0
indicates that buying and selling pressure is equal. Positive values between 0
and +1 indicate that buying pressure is stronger than selling pressure.
Negative values between 0 and -1, on the other hand, reflect that selling
pressure is stronger than buying pressure.
The Chaikin Money Flow (CMF) formula is designed to reveal whether money is flowing into or out of a security by combining price position within the daily range with actual trading volume. Unlike pure price oscillators, the Chaikin Money Flow (CMF) formula shows real accumulation or distribution because heavy volume on strong closing days pushes the indicator higher, while the opposite scenario drives it lower. The main advantage of the Chaikin Money Flow (CMF) formula lies in its ability to confirm the strength behind a trend: a rising price accompanied by a rising CMF confirms genuine buying interest, whereas a rising price with a falling or negative CMF often signals a weak move that may reverse. Similarly, the Chaikin Money Flow (CMF) formula frequently spots divergences. Price can make new highs while the indicator fails to follow, and that usually serves as one of the earliest warnings of an upcoming reversal. In short, the Chaikin Money Flow (CMF) formula helps separate real conviction from fake moves driven only by light-volume momentum.
How to Use Chaikin Money Flow Indicator
A simple and effective Chaikin Money Flow strategy focuses on three core signals that work across most markets.
- trend-confirmation Chaikin Money Flow strategy
- zero-line crossover Chaikin Money Flow strategy
- divergence Chaikin Money Flow strategy
First, in the trend-confirmation Chaikin Money Flow strategy traders only take long positions when price is above a rising 50-day moving average and CMF stays positive for at least five consecutive days. Shorts require price below a falling 50-day average with CMF negative for five days or more. This basic Chaikin Money Flow strategy alone filters out most false breakouts.
Second, in the zero-line crossover Chaikin Money Flow strategy traders look for a buy signal when CMF crosses from below zero to above zero, especially if volume is expanding. A sell or short signal triggers when CMF crosses from positive territory back below zero. These crosses are most reliable when they happen after CMF has been on one side of zero for ten periods or longer.
Third, in the divergence Chaikin Money Flow strategy, traders enter counter-trend trades. This happens when price makes a higher high, but CMF forms a lower high. This is called bearish divergence. It also happens when price makes a lower low, but CMF shows a higher low. This is called bullish divergence. This version of the CMF strategy often gives the earliest reversal signals. These signals are usually high-probability.
Combining all three strategies into one Chaikin Money Flow strategy produces the cleanest results. This combined strategy also yields the most consistent results. It typically involves requiring confirmation from at least two strategies at the same time. This approach results in very few losing streaks.
CMF can be used as an early indicator of a trend change. If a security's price is rising and CMF is also rising, it's likely that the trend will continue. Conversely, if a security's price is falling and CMF is decreasing, it's probable that the trend will reverse. One of the most common classical methods of trading with CMF is as follows: if the CMF oscillator line (the blue line in the example chart) crosses above the 0 line from below, we enter a Buy order. Contrarily, if the oscillator line (blue line) crosses below the 0 line from above, we enter a Sell order. Take a look at the example on the 4-hour chart of Euro/Chinese Yuan for reference:
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| CMF 0 line Crossover Signals on EUR/CNY |
The method mentioned above is a classic approach and still
valid. However, some traders have started using it in a different way. In this
variation, they enter a Buy order when the oscillator line (the blue line) is
turning from the very bottom (negative value) towards the 0 line. Conversely,
they enter a Sell order when the oscillator line (blue line) is turning from
the top (positive value) towards the downside. This way, they capture signals
earlier in the trend reversal process.
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| CMF Divergence Signals on GBP/AUD |
In the CMF indicator, we can also trade based on divergences between the price chart and the oscillator. In the GBP/AUD example chart above, you can see that a Sell order is triggered with Negative Divergence, and a Buy order is triggered with Exaggerated Divergence. Here, only two examples are provided, but you can trade with all types of divergences in the CMF indicator. Information about the types of divergences and how to use them in trading is provided in this article: "Different Types of Divergences."
What Are the Best Settings for Chaikin Money Flow?
The most widely used and effective setting remains the original 20-period or 21-period CMF on daily charts. This length is sufficient to smooth out noise while staying responsive enough for practical signals. For swing trading (several days to a few weeks), 20 or 21 days works best for most stocks, ETFs, and indices. Day traders sometimes shorten it to 10–14 periods on 30-minute or hourly charts to reduce lag, though this increases whipsaws. On weekly charts for position trading, 13 or 20 weeks is common and performs well. Zero-line crosses and the ±0.25 extreme levels are the key thresholds with the standard setting. Changing the period too much (below 10 or above 50) usually reduces rather than improves performance, so the classic 20/21-period version is still the default choice for the vast majority of users.
How Accurate Is the Chaikin Money Flow Indicator?
The Chaikin Money Flow (CMF) indicator is not a standalone predictor, and no single indicator is ever 100% accurate. Yet, CMF is considered highly reliable for measuring sustained buying or selling pressure. When CMF stays consistently above zero during an uptrend or below zero in a downtrend, the trend continues in the majority of cases. Studies and real-world use show that confirmed breakouts accompanied by CMF above +0.25 or below -0.25 have win rates normally between 65 % and 80 %, depending on the market and timeframe. Its greatest strength is divergence detection. Price and CMF divergences precede major reversals in roughly 70–75% of documented cases on daily charts. Accuracy drops noticeably on very low-volume stocks or in strong trending markets without pullbacks, where the signal can stay overbought or oversold for extended periods.
❗ Remember. Trading in financial markets carries the risk of losses. The Chaikin Money Flow (CMF) indicator should not be used as the sole tool for forex trading. Like any indicator, the CMF indicator can sometimes produce false signals. It should be used in conjunction with other technical analysis indicators that suit your trading strategy, consider fundamental analysis, and take risk factors into account. Wishing you profitable trades!