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Chaikin Money Flow (CMF)
The Chaikin Money Flow compares sum volume to the closing price and the daily peaks and falls to define the number of issues being purchased and sold of a certain security. Marc Chaikin developed this indicator.
Supposedly, a bullish stock has a rather high close price within its daily range and an increasing volume, and the indicator is based on this statement. Still if a stock is permanently closed with a rather low close price within its daily range with high volume, this demonstrates a weak security. There is selling pressure when a stock closes in the lower half of the period's trading range and there is pressure to purchase when a stock closes in the upper half of a period's range. Certainly, the precise number of the indicator's periods can differ depending on the sensitivity and the time limits of individual investors. If Chaikin Money Flow is less than zero, it is a definite first bearish signal. If the point is below zero it means that a security is experiencing distribution or stays under selling pressure.
A second possible bearish sign is the period of time for which Chaikin Money Flow has been below zero point. The more time it is negative, the more possible is distribution or long selling pressure. Long periods below zero can mean bearish sentiment towards the basic security and possibility of downward pressure on the price.
In the end, the third possible bearish signal is the degree of selling pressure. It can be defined by the absolute level of an oscillator. As a rule, readings on both sides of the zero line (plus or minus 0.10) are not strong to guarantee bullish or bearish signals. If the indicator moves above +0.10, it is a sufficient sign for warranting a bullish situation. Just as if the indicator falls under the point of -0.10, the degree selling pressure starts warranting a bearish signal. Marc Chaikin proves that a reading above +0.25 predicts strong buying pressure. On the contrary, a reading below -0.25 is the signal of strong selling pressure.
The Chaikin Money Flow is based on the supposition that a bullish stock has increasing volume and a rather high close price within its daily range, which means strong security. Still there is a weak security if it is permanently closed with a rather low close price within its high volume and daily range.