A:

The similarities between Chaikin Money Flow oscillator and the Money flow index end with the idea that they are both commonly used by active traders to monitor the flow of money and/or momentum. Yes, they are both commonly used momentum indicators, but how they are calculated and/or interpreted is quite different. The Chaikin money flow oscillator is similar to the MACD indicator in that it uses two different exponentially weighted moving averages to analyze momentum. In the case of the Chaikin Money Flow, the indicator uses the difference between a 3-day exponentially-weighted moving average (EMA) of the accumulation/distribution line and the 10-Day EMA of the Accumulation/Distribution Line.

As you can see from the chart of Amazon.com Inc (AMZN) below, negative money flow as shown by the period between the two red rectangles, suggests that the directional bias is downward. Positive money flow is marked by the green areas on the indicator and suggests that the trend is upward.

The money flow index is quite different than the Chaiken money flow index in that it uses volume in combination with recent price movements to determine whether momentum is up or down. Many traders view this indicator as a volume-weight relative strength index (RSI).

As you can see from the chart above, the money flow index never moves above or below key overbought or oversold levels on the chart of AMZN like it did in the Chaikin money flow example above. When using the money flow index, buy and sell signals are only generated when the index moves beyond the 20 or 80 levels. Since the underlying indictors used to create these indicators are different, it is unsurprising to see that the buy and sell signals are quite different. In general, It is important to understand the underlying formula of any technical indicator before using it to generate buy and sell signals. (For more, check out The Basics Of Money Flow)

RELATED FAQS
  1. Why is the Money Flow important for traders and analysts?

    See why the concept of money flow is useful in technical stock market analysis, and how traders and analysts can use money ... Read Answer >>
  2. What are the main differences between Money Flow & Money Flow Index (MFI)?

    Find out how to differentiate between standard money flow and the Money Flow Index, two methods of expressing the strength ... Read Answer >>
  3. What is the difference between cash flow and fund flow?

    See how cash flow and fund flow differ from each other, and why fund flow can be used very differently by accountants and ... Read Answer >>
  4. Why do analysts look at operating cash flow?

    Learn how operating cash flow is used to determine financial health. Examine how cash flow is calculated, and what a low ... Read Answer >>
  5. What are some examples of how cash flows can be manipulated or distorted?

    Read about some of the most common accounting techniques that can be used to manipulate the operating cash flow on a company's ... Read Answer >>
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. Investing

    Explaining Capital Flows

    The movement of money for investing, trade or business production, is commonly referred to as capital flows.
  5. Investing

    Cash Flow From Investing

    Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it.
  6. Small Business

    Understanding Cash Flow

    Learn about the different types of cash flows and the importance for businesses to properly manage their cash flows.
  7. Investing

    Evaluating A Statement Of Cash Flows

    The metrics for the Statement of Cash Flows is best viewed over time.
  8. Investing

    Fundamental Case Study: Is Amazon's Cash Flow Actually Solid? (AMZN)

    Review Amazon's cash flow situation, including its free cash flow yield, operating cash flow from organic growth and cash flow from debt financing.
  9. Investing

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
RELATED TERMS
  1. Money Flow

    Calculated by averaging the high, low, and closing prices, and ...
  2. Non-Operating Cash Flows

    Cash flows (inflows and outflows) that are not related to the ...
  3. Accumulation/Distribution

    A momentum indicator that attempts to gauge supply and demand ...
  4. Capital Flows

    The movement of money for the purpose of investment, trade or ...
  5. Cash Flow From Investing Activities

    An item on the cash flow statement that reports the aggregate ...
  6. Divergence

    When the price of an asset and an indicator, index or other related ...
Trading Center