Chaikin money flow indicator is an mt4 technical oscillator that combines the money flow and price volume to show the strength or weakness in a range of -1 to 1.
This indicator helps traders to determine the price reversal levels by using the money flow of institutional traders.
How does Chaikin money flow indicator works?
It works by using the principles of accumulation and distribution. Accumulation and distribution are two phases of the market.
- In the accumulation phase, price of a security or asset rises up due to overbought conditions.
- In the distribution phase, price of a security or asset falls down due to oversold conditions
This indicator uses the price volume and money flow. For example, a large spike in volume occurs when institutional traders buy or sell a security. So this indicator uses the volume spikes and the money flow to identify a reversal in price trend.
Chaikin money flow indicator settings in MT4
The default period for the Chaikin money flow indicator is 21. It means this indicator uses the data of the previous 21 candlesticks. Data means the volume and money flow of each candlestick.
This indicator oscillates between a range of -1 to +1. If the value is greater than zero then it means the price trend is strong. On the other hand, if the value is less than zero then it means the price trend is weak.
MT4 Trading Signals
Signals depend on the value of the oscillator in the Chaikin money flow indicator.
Buy signal
If the value of the oscillator is above the zero line then the indicator will give a buy signal. A value greater than zero shows the strength of the price. Greater strength means more buying potential and big traders are looking to buy that asset or currency pair.
Sell signal
If the value of the oscillator is below zero then the indicator will give a sell signal.
The negative value is a sign of weakness of price. Weakness in price is directly related to selling pressure and big traders are looking to sell.
Conclusion
It is the advanced money flow indicator that also uses the volume. By getting signs of weakness or strength of a currency pair or any asset, we can forecast easily. Chaikin indicator can also be used as a confluence with other trading strategies to get a high winning ratio in trading.
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