Price tells you where a market has been. Volume tells you how much conviction was behind the move. Chaikin money flow, often shortened to CMF, combines the two to estimate whether money is flowing into or out of a stock. It is a popular tool among traders who want to check whether a rally or sell-off has real support.
What Chaikin money flow is
Chaikin money flow was developed by Marc Chaikin, a stock analyst who created several volume-based indicators. It measures buying and selling pressure over a set period, commonly 20 or 21 days, and produces a line that moves above and below zero.
How it works
The calculation starts with a simple idea. If a market closes near the top of its daily range, buyers were in control. If it closes near the bottom, sellers were in control. Each day gets a score between minus one and plus one based on where the close sits within the high-low range. That score is then multiplied by the day’s volume, so high-volume days count for more.
Chaikin money flow adds up these volume-weighted scores over the chosen period and divides by the total volume over the same period. The result usually sits between minus one and plus one, although in practice readings beyond plus or minus 0.5 are rare.
How to read it
A reading above zero suggests buying pressure: prices have tended to close in the upper part of their ranges on meaningful volume. A reading below zero suggests selling pressure. The further from zero, the stronger the signal. Many traders treat sustained readings above around 0.05 or below around minus 0.05 as more meaningful than small moves around the line.
Divergence is another common use. If a share price is making new highs but CMF is falling, buying pressure may be fading beneath the surface. If the price is making new lows while CMF rises, selling may be drying up.
How it compares with other volume tools
On-balance volume adds or subtracts the whole day’s volume depending on whether the price closed up or down. Chaikin money flow is more nuanced, because it considers where the price closed within the day’s range. Our guide to on-balance volume explains the simpler approach.
Weaknesses
CMF ignores gaps between one day’s close and the next day’s open, so a big overnight move can be missed. It can stay positive or negative for long periods in strong trends, which makes it less useful for timing entries. It also depends on reliable volume data, which is less meaningful in markets such as spot forex, where there is no single central exchange.
Practical tips
Use Chaikin money flow to confirm what price is telling you. A breakout with CMF firmly above zero is more convincing than one with CMF near or below it. Look for divergences at key support and resistance levels rather than in the middle of a range. Combine it with a clear plan for entries, exits and position size.
The beginner takeaway
Chaikin money flow helps you see whether volume supports a price move. It is a useful confirmation tool, not a crystal ball. If you want to find out how well you use evidence like this in your trading decisions, take the free Samuel & Co Trading Trader Assessment.
