Money Flow by Christopher Narcouzi
An indicator combining price and volume could spotlight
buying and selling, and Chaikin's money flow is such an
indicator. Use it with basic charting techniques to increase
your chances of success.
Most momentum measurements and
oscillators use only price in their
calculations. To use several such
indicators is essentially redundant,
since they tend to be highly correlated; another indicator should be
considered, one that is not highly
correlated with momentum and
oscillators. Trader and analyst
Marc Chaikinís money flow fits the bill. It uses price and
volume to give you a look at what is going on under the
surface of the price action. It gives you a picture of the supply/demand situation and shows you whether the stock is under
accumulation or distribution. I use this indicator to confirm
breakouts from chart patterns.
Chaikinís money flow is based
on Chaikinís accumulation/distribution. Accumulation/distribution, in turn, is based
on the premise that if the stock
closes above its midpoint
[(high+low)/2] for the day,
then there was accumulation
that day, and if it closes below
its midpoint, then there was
distribution that day.
Chaikin's money flow is calculated by summing the values of accumulation/distribution for 21 periods and then
dividing by the 21-period sum
of the volume.