Chaikin Oscillator

What is the 'Chaikin Oscillator'

Named after its creator, Marc Chaikin, the Chaikin oscillator is an oscillator that measures the accumulation/distribution line of the moving average convergence divergence (MACD). The Chaikin oscillator is calculated by subtracting a 10-day exponential moving average (EMA) of the accumulation/distribution line from a three-day EMA of the accumulation/distribution line, and highlights the momentum implied by the accumulation/distribution line.

BREAKING DOWN 'Chaikin Oscillator'

Fundamental analysts study business performance to glean information about the future direction of stock prices. Fundamental analysts believe that the ability to predict the market is about being the most informed. Technical analysts believe that all known information is already priced into the market and that patterns in the movement of stock prices can help to predict the future. Technical analysts use the Chaikin oscillator to find directional trends in momentum.

Using the Chaikin Oscillator

To understand how the technical analyst uses the oscillator, imagine an auction. Accumulators or buyers are on one side, and distributors or sellers are on the other side. When there are more sellers in the room, the price of the item being sold goes down. Likewise, when there are more buyers in the room, the price of the item being sold tends to go up.

It is the balance of this relationship that drives markets. Analysts measure this relationship, the balance of buyers (accumulators), and sellers (distributors) with myriad indicators, including accumulation/distribution indicators such as the Chaikin oscillator.

Chaikin Oscillator Usage Example

The goal of the Chaikin line is to identify levels of momentum within the accumulation/distribution line of the MACD indicator – specifically, it is the MACD applied to the accumulation/distribution line rather than prices.

For example, assume a trader wants to know if the price of a stock is going up or down. According to the chart, the MACD is trending up. The Chaikin oscillator shows a positive divergence with cross above the baseline. The baseline is referred to as the accumulation/distribution line. A cross above the baseline means traders are accumulating, which is a buy sign.

The Chaikin oscillator has two main signals. The first signal is a positive divergence, confirmed with a center-line crossover above the accumulation/distribution line, as is the case in the example. The second signal is a negative divergence confirmed with a center-line crossover below the accumulation/distribution line. The positive divergence is a sign the price is going up due to an increase in accumulation. The negative divergence is a sign the price is going down due to a decrease in accumulation.

Being able to recognize momentum in accumulation and distribution patterns gives technical traders an edge that they can use to develop a theory they can capitalize on. The strength of the oscillator provides signals to analysts about the direction of prices in the future. To learn more about the Chaikin Oscillator, check out What's the difference between Chaikin Money Flow (CMF) and [Money Flow Index (MFI)?]

RELATED TERMS
  1. Accumulation/Distribution

    A momentum indicator that attempts to gauge supply and demand ...
  2. Accumulation/Distribution

    An indicator that tracks the relationship between volume and ...
  3. Divergence

    When the price of an asset and an indicator, index or other related ...
  4. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used ...
  5. Oscillator

    A technical analysis tool that is banded between two extreme ...
  6. Chande Momentum Oscillator

    A technical momentum indicator invented by the technical analyst ...
Related Articles
  1. Trading

    How To Use The Chaikin Oscillator To Your Advantage

    How best to reconcile increasing or decreasing volume with price fluctuations? No one has a definitive answer, but Marc Chaikin has come as close as anyone. Enter the Chaikin Oscillator.
  2. Trading

    Discovering Keltner Channels and the Chaikin Oscillator

    It's time to acquaint yourself with some lesser-known yet effective technical indicators.
  3. Trading

    Trend-Spotting With The Accumulation/Distribution Line

    The A/D line highlights buying and selling pressure to confirm existing trends.
  4. Trading

    The Basics Of Money Flow

    Learn how this indicator uses both price and volume to record a more complete picture of price action.
  5. Trading

    MACD And Stochastic: A Double-Cross Strategy

    The stochastic oscillator and the moving average convergence divergence (MACD) are two indicators that work well together.
  6. Managing Wealth

    The Top Technical Indicators For Commodities Investing

    Traders can use "the usual suspects" (standard indicators for trend trading) when it comes to choosing indicators for investing in commodities. Here's how.
  7. Markets

    Use The Percentage Price Oscillator: The "Elegant Indicator" For Picking Stocks

    Technical analysis is basically an attempt to disprove the credo that "Past performance is not indicative of future results." The percentage price oscillator, which measures momentum, is among ...
  8. Trading

    Exploring Oscillators and Indicators: Stochastic Oscillator

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com The stochastic oscillator is another well-known momentum indicator used in technical analysis. The idea behind this indicator ...
  9. Trading

    Exploring Oscillators and Indicators: MACD

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.com The moving average convergence divergence (MACD) is one of the most well known and used indicators in technical analysis. ...
  10. Trading

    Combined Forces Power Forex Snap Strategy

    Stochastic and MACD oscillators can help isolate greater opportunities in range-bound markets.
RELATED FAQS
  1. How do I create a basic trading strategy with a Chaikin Oscillator?

    Create basic trading strategies using the Chaikin Oscillator to identify possible market turns in direction and profitable ... Read Answer >>
  2. What's the difference between Chaikin Money Flow (CMF) and Money Flow Index (MFI)?

    The similarities between Chaikin money flow and the money flow index end with the idea that they are both commonly used by ... Read Answer >>
  3. What are the most popular volume oscillators in technical analysis?

    Learn about the most popular volume oscillator indicators used in technical analysis, and see how they are calculated and ... Read Answer >>
  4. How do you know where on the oscillator you should make a purchase or sale?

    Learn more about oscillator indicators, technical momentum measures that are used by traders to predict potential market ... Read Answer >>
  5. What is a common strategy traders implement when using the Ultimate Oscillator?

    Learn what the ultimate oscillator is and find out about a common strategy traders use with the oscillator to signal entries ... Read Answer >>
  6. Why is the Ultimate Oscillator important for traders and analysts?

    Understand the thinking behind the design of the ultimate oscillator and learn the primary trading signals that it generates ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center