Chaikin Money Flow: close position weighted by volume

What it measures

CMF looks at where each bar closed within its own high-to-low range, weights that by the bar’s volume, and sums the result over a window. A bar closing near its high with heavy volume contributes strongly positive flow.

It measures accumulation and distribution pressure within bars, which is different from the bar-to-bar comparison OBV makes.

Both are attempts at the same question — which side is being aggressive — from opposite ends. OBV looks between bars and ignores what happened inside them; Chaikin looks inside bars and ignores where they sat relative to each other. Running them together and watching for disagreement is more useful than choosing one.

How it is calculated

These are the steps Basis performs, verified against the published definition.

1. 1

   For each bar compute the close location value: ((close − low) − (high − close)) / (high − low). It runs from −1 at the low to +1 at the high.

2. 2

   Multiply by the bar’s volume to get money flow volume.

3. 3

   Sum money flow volume over the period and divide by the total volume over the same period.

Settings

Twenty or twenty-one periods is standard. Shortening it makes CMF cross zero far more often and turns it from a regime reading into a noisy oscillator, which is not what it is for. If you want something faster, Twiggs Money Flow is the smoother alternative rather than a shorter Chaikin.

How to read it

• Sustained readings above zero indicate accumulation; below zero, distribution.
• Crossings of zero matter more than the magnitude, which is bounded by ±1 and rarely approaches it.
• CMF disagreeing with price direction over several bars is the signal worth acting on — agreement is just confirmation.
• The reading is a ratio of sums, so a single enormous-volume bar can hold it away from zero for the entire lookback window.

Where it misleads

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