Chaikin money flow is an oscillator indicator.

 

As an oscillator indicator,Chaikin money flow was created by Mark chaikin with the main objective of helping traders to know the direction of the market as well as to know whether the market has experience an oversold or an overbought market condition by measuring the money flow volume over a given period of time.

As  an oscillator indicator chaikin money flow  has an oscillation at point 0 ranging from -0.5 to 0.5.

Chaikin money flow is based on centerline,overbought and oversold as well as divergence.

 

According to Mark chaikin, the value of Chaikin money flow is therefore calculated using the following steps;

 

-calculating the money flow multiplier as follows;


money flow multiplier= {(close-low)-(high-close)}/(high-low)

-calculating the money flow volume as follows;

 

money flow volume= money flow multiplier* volume of a given period

-From the two results,the chaikin money flow is therefore calculated as follows;


21 period CMF= 21 period sum of money flow volume/21 period sum of volume

We will prefer to explain the indicator using the concept of overbought and oversold instead of divergence as follows;

 

1.Chaikin money flow cryptocurrency oversold 

 

Since chaikin money flow is based on centerline,it therefore follows that when the chaikin money flow crosses below 0 that will be an indication of a bearish market thus the trader should be trading downwards . Based on oversold condition, when the chaikin money flow crosses below -0.2 when the market is in bearish condition,that will be an indication of an oversold condition thus signaling the cryptocurrency trader to purchase a given amount of cryptocurrency with their USDT balance. The cryptocurrency trader can either place a market buy order which will be processed immediately or they can place a limit buy order which will be placed when the market reaches their limit buy order. This is indicated as from below;

 

 

 

 

 

The above is a TRX market in terms of USDT. Two points are being indicated. There is point A and point B. Point A is the chaikin money flow while point B is the oversold point. At point B, the chaikin money flow has fallen below -0.2 thus an indication of an oversold condition at that point. This signals the cryptocurrency trader to purchase a given amount of  TRX with their USDT balance. The trader can either place the order using the market price which will instantly be executed or they can use limit buy order which will be executed when the market reaches their limit buy order price. When the order is being placed, the account of the cryptocurrency trader will start increasing in value in terms of USDT. 

 

 

 

 

2.Chaikin money flow cryptocurrency overbought

 

Since chaikin money flow is based on centerline,it therefore follows that when the chaikin money flow crosses above 0 that will be an indication of a bullish market thus the trader should be trading upwards . Based on overbought condition, when the chaikin money flow crosses above 0.2 when the market is in bullish condition,that will be an indication of an overbought condition thus signaling the cryptocurrency trader to sell a given amount of cryptocurrency which he had previously purchased. The cryptocurrency trader can either place a market sell order which will be processed immediately or they can place a limit sell order which will be placed when the market reaches their limit sell order. This is indicated as from below;

 

 

 

 

 

The above is a TRX market in terms of USDT. Two points are being indicated. There is point A and point B. Point A is the chaikin money flow while point B is the overbought point. At point B, the chaikin money flow has risen above 0.2 thus an indication of an overbought condition at that point. This signals the cryptocurrency trader to sell a given amount of  TRX which he had previously purchased to avoid declining the value of their account. The trader can either place the order using the market price which will instantly be executed or they can use limit sell order which will be executed when the market reaches their limit sell order price. When the order is being placed, the account of the cryptocurrency trader will have increased in value in terms of USDT. 

cryptocurrency market is a highly volatile market. As a cryptocurrency trader,whenever you place a buy order,always make sure to apply risk management so that whenever your buy order goes against you, your account do not depreciate so much in value.

 

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