Metatrader 4 Indicators: Chaikin Money Flow
Chaikin Money Flow Metatrader 4 Indicator: The Basics
f you are interested in studying technical analysis, you should learn more about indicators that allow traders to make sharper entry and exit points, which will improve their trading programs. Here we will try to give you a better notion of money flow, which was developed by Chaikin. This metatrader indicator is based both on price and volume that allows to get a better idea of the price action.
The Description of Money Flow Metatrader 4 Indicator
Money flow is an indicator. It allows you to calculate an indexed value on the basis of volume and price for the certain number of bars, which is set in the input Length. Each bar with an average price less or greater than the previous bar is included into calculations. After that all the received values are indexed in order to calculate the money flow. It is possible to receive different perspective from volume or price thanks to usage of price and volume at the same time. The given metatrader indicator is very useful for identifying overbought and oversold conditions because of its tendency to display dramatic oscillations.
Now let’s explain all of the above said in more simple terms. First of all, let’s speak about the momentum indicator that determines money flow, i.e. about accumulation/distribution. According to Chaikin, accumulation is a state of the stock when it is closed above its midpoint and distribution is when the stock is closed below its midpoint.
If you’d like us to represent the given explanation in terms of mathematics, here you are: in order to calculate the midpoint you just should find the arithmetic average of the highest and the lowest trade of the day. Then, according to Chaikin, you should use price and volume in order to finish the calculation. Chaikin added the accumulation/distribution number for a 21-day trading period, and then divided the derived number by the sum of the volume for the same 21-day period.
Usage of Money Flow Metatrader 4 Indicator
Money Flow Divergence
Divergence can show up in the indicator when the CMF indicator makes a higher high, while the price action makes a lower low. This implies that there is less selling pressure pushing the security lower, thus a bounce is in order. Money Flow divergence is very strong signal for trend reversal.
Money Flow Divergence Examples
Read more about Chaikin Money Flow Divergence Indicator
Conclusion
We’ve tried to explain the complicated indicator in simple words. The Chaikin money flow is a perfect tool for identification of overbought and oversold positions, but it has its shortcomings, too. The money flow depends on accumulation/distribution, and it may influence the accuracy of numbers in case of absence of the midpoint. Do not forget to use the signals of other indicators in order to check the accuracy of entry and exit points.
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This entry was posted on Monday, June 13th, 2011 at 7:48 am and is filed under forex indicator, metatrader indicator. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
