Chaikin Money Flow (CMF)

Overview

Chaikin Money Flow (CMF), developed by Marc Chaikin, measures the amount of money flow over a defined period. Unlike OBV which treats each day’s volume binarily (positive/negative), CMF uses the close’s position within the day’s range to weight volume contribution — making it more nuanced.

CMF oscillates between +1 and −1, typically staying within ±0.50. Persistent positive readings indicate sustained buying pressure; persistent negative readings indicate selling pressure.

Formula

Money Flow Multiplier = ((Close - Low) - (High - Close)) / (High - Low)
Money Flow Volume = Money Flow Multiplier × Volume

CMF = sum(MFV over N periods) / sum(Volume over N periods)

Default N = 20 or 21

Default Settings

• Period: 20 or 21
• Zero line: dividing line between buying / selling pressure
• Strong levels: above +0.25 (strong buying), below −0.25 (strong selling)

How to Use It

1. Confirmation of Trend

• CMF consistently above zero — buying pressure dominates, uptrend healthy
• CMF consistently below zero — selling pressure dominates

2. Zero-Line Cross

CMF crossing zero often precedes price reversals. Cross from below to above = bullish; above to below = bearish.

3. Divergence

Same as OBV: price makes higher highs but CMF makes lower highs = bearish divergence.

4. Strength of Pressure

Sustained readings above +0.25 or below −0.25 indicate strong, persistent flow. Brief spikes are less meaningful.

Strengths

• Bounded oscillator — easier to interpret than cumulative OBV
• Volume + price-range weighted — more informative than pure volume
• Effective for spotting institutional accumulation / distribution patterns

Weaknesses & Common Mistakes

• Doesn’t account for gaps — the formula uses intraday range only; misses overnight gaps
• Lagging on fast moves — 20-period average smooths out short-term action
• Forex limitations — same as OBV; tick volume is approximate
• Treating brief spikes as signals — persistent direction matters; one-day extremes can mislead

Best Combinations

• CMF + Price Trend — trend continues when CMF agrees; warning when they diverge
• CMF + Breakouts — require positive (or negative) CMF for valid breakout confirmation
• CMF + RSI — momentum + volume flow alignment provides higher-confidence entries

Practical Example

Microsoft stock daily chart. Stock consolidates after a rally; CMF stays above +0.20 throughout the consolidation — institutional accumulation. Breakout above range high; CMF spikes to +0.40 confirming strong buying. Long entry, ride trend while CMF stays above zero.

Bottom Line

CMF tells you the quality of price action, not just its direction. A trend supported by positive CMF is far more reliable than one without it.