MARK – Chaikin’s Volatility

With the help of the Volatility Chaikin’s indicator you can measure the distinction between high and low prices which clearly demonstrates peaks or falls of the Forex market. There are two variants of interpreting the result.

The first method supposes that an increase in the volatility indicator within a rather short time period demonstrates the proximity of a bottom. While a volatility decrease within a longer time period shows a close top.

The second method supposes that Forex market peaks are usually accompanied by increased inconstancy and that the last stages of a Forex market bottom are usually accompanied by decreased inconstancy.

MARK – 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. This indicator was developed by Marc Chaikin.

It’s supposed that 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’s 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’s 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 supposed rather strong for guaranteeing bullish or bearish signals. If the indicator moves above +0.10 it’s 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’s permanently closed with a rather low close price within its high volume and daily range.

Marc Chaikin About Chaikin’s Oscillator

This volume indicator, Chaikin’s Oscillator, is called after its developer Marc Chaikin and is a difference of moving averages of the accumulation/distribution indicator. Elaborating it Chaikin proceeded with the work of his forerunners Joe Granville and Larry Williams.

The volume indicator of accumulation/distribution by Marc Chaikin technically analyses both market indexes and separate shares, and should also comprise knowledge of tenders’ volume to help analysts to get the right vision of the essence of every particular market.

In many cases only a discrepancy of volume and the market prices predicts an important market turn. It allows foreseeing internal forces and market weak points. Technical analysts always knew that tenders’ volume is very important; nevertheless, some well-known researches in this field were not acknowledged till the latest 60th years when Joe Granville and Larry Williams started their studies on connection of the price and volume more effectively. The price and volume were thought to be rising and decreasing simultaneously for a long time, and that any violation of this dependence happens as a result of leaps in the price tendency. One of these theories was the Granville’s concept of balance volume (IAV) which’s rather clear but too simple and therefore not irreproachable. This concept says that the whole volume in day of a increase in prices is considered as accumulation, and in day of decline as distribution.

According to IAV, the prices’ noticeable short-term and intermediate rises and falls very often turn out to be quite true. There’s a precise technical signal that predicts the upcoming change of the market prices. It usually happens when the formation of a price extremum goes together with a discrepancy of IAV line. According to this rule, the so-called concept of balance volume was elaborated and improved by another researcher, Larry Williams.

Granville and Williams surveyed the market in different ways: the first one compared running close price with previous, the second one – close price with open price. In this way they found out what occurred – accumulation or distribution.

The cumulative indicator developed by Williams lets add to its cumulative value some share of day time tenders’ volume in case if the close price exceeds the open price and subtracting a share of volume in case if the close price is less than the open price.

That’s why we can surely say that accumulation/distribution indicator turned out to be a more successful principle of the analysis than that of volumetric divergences by Granville. And when Williams developed oscillator on the basis of an accumulation/distribution line, this new oscillator allowed getting even more exact buy or selling.

In the early seventies it was quite impossible to make calculations according to Williams’s formula without phoning the broker every day because daily newspapers have stopped printing data on the share’s open price. That’s why Chaikin created Oscillator and replaced the open price in Williams’s formula by the average day.

So if there is a reliable instrument of the market analysis and a tool of opportune defining buy and sell signals – it’s Chaikin’s Oscillator. There are three main principles in the oscillator’s concept.

Principle one:

An accumulation (maximum plus minimum) will definitely occur this very day if the share or an index is closed above the average value for the day. The accumulation becomes more active the closer the level of share close or an index reaches the maximum rate. Vice versa, the distribution occurred this day once the share gets lower than the average day price. The distribution becomes more active the closer you get to the minimum rate.

Principle two:

As a rule, when prices constantly go up, tenders’ volume and strong volume accumulation are also rising. Indebtedness of volume at prices’ growth demonstrates lack of fuel for further rise while the volume of some types of fuel feeding market increases. Vice versa, when the market prices decrease low volume may be observed, and finally there is a panic liquidation of institutional investors’ positions.

Principle three:

Chaikin Oscillator also allows following volume of the market money resources. So one is able to predict market rises and falls – both short-term and intermediate term – with the help of comparing changes of volume and prices.

It’s recommended to use Chaikin Oscillator with other technical indicators because there are still no irreproachable instruments of technical analysis.

Chaikin Oscillator can be also used differently when change of its direction serves as a buy or sell notice but only if it corresponds to the direction of the price tendency.

That’s a broker gets a clear buy signal when the share on the rise and its price over a 90-day’s moving average turn of oscillator curve goes upwards in the field of negative values. It’s true only when the share price exceeds a 90-day’s moving average. The broker gets a sell signal when the turn of the oscillator goes downwards in the field of positive values – which is over zero. It’s true only in case if share price at this particular time is lower than a 90-day’s moving average of the nearest price rate.