Chaikin Money Flow
Chaikin Money Flow, or CMF, is an indicator developed by Marc Chaikin to measure the amount of money flowing into or out of a security over a specified period. It improves on On Balance Volume by considering where the close falls within the day’s range, not just whether it was higher or lower than yesterday. CMF oscillates above and below zero and is a favourite of Indian swing traders looking for accumulation or distribution.
Key takeaways:
- CMF measures money flow over a defined window (default 20 periods).
- Above zero suggests net buying pressure; below zero suggests net selling.
- Sustained CMF readings above +0.1 indicate strong accumulation.
- Readings below −0.1 indicate strong distribution.
- Best combined with price-trend analysis for confirmation.
How CMF is calculated
For each period: Money Flow Multiplier = ((Close − Low) − (High − Close)) ÷ (High − Low). This is between −1 and +1. Multiply by volume to get Money Flow Volume. Sum over N periods and divide by sum of volume to get CMF.
Interpreting CMF readings
- CMF > 0.05: Net buying interest; bullish bias.
- CMF < −0.05: Net selling interest; bearish bias.
- Crossing zero: Possible change in money-flow direction.
- Divergence: Price highs without CMF highs hint at hidden distribution.
CMF vs OBV vs MFI
| Indicator | What it does best |
|---|---|
| OBV | Cumulative volume direction |
| MFI | Volume-weighted overbought/oversold |
| CMF | Volume-weighted accumulation/distribution over a fixed window |
Worked example
A stock is in an uptrend with prices making higher highs. CMF stays consistently above +0.1 — confirmation that institutional money is buying. When CMF eventually drops below zero while price still attempts new highs, the divergence is a yellow flag worth watching.
Settings to consider
- Default 20 works for daily charts.
- Intraday traders use 10 to make the indicator more responsive.
- Long-term investors apply CMF on weekly charts with periods of 21–34.
Limitations
CMF treats every trade equally regardless of size beyond raw volume. Pre-open auction bars and one-off block deals can skew the indicator. Use CMF alongside trend tools and avoid making decisions on a single spike.
Frequently asked questions
Is CMF good for Nifty 50 stocks?
Yes, particularly the high-volume names where volume data is reliable.
What is a strong CMF reading?
Above +0.25 is unusually strong accumulation; below −0.25 is heavy distribution.
Can CMF be used as a stand-alone signal?
Most traders use CMF as a confirmation tool, not for primary entry.
Does Lemonn’s charting tool support CMF?
Yes — CMF is a standard indicator across modern Indian charting platforms.
