Chaikin Oscillator

What Is the Chaikin Oscillator?

The Chaikin oscillator is named for its creator Marc Chaikin. The oscillator measures the accumulation-distribution line of moving average convergence-divergence (MACD).

To calculate the Chaikin oscillator, subtract a 10-day exponential moving average (EMA) of the accumulation-distribution line from a 3-day EMA of the accumulation-distribution line. This measures momentum predicted by oscillations around the accumulation-distribution line.

Image

Image by Sabrina Jiang © Investopedia 2021

Key Takeaways

  • The Chaikin Indicator applies MACD to the accumulation-distribution line rather than to the closing price.
  • It is an oscillator technical indicator for spotting trends and reversals.
  • A cross above the accumulation-distribution line indicates that market players are accumulating shares, securities, or contracts, which is typically bullish.

The Formula for the Chaikin Oscillator Is

 N = ( Close Low ) ( High Close ) High Low M = N * Volume ( Period ) ADL = M ( Period 1 ) + M ( Period ) CO = ( 3-day EMA of ADL ) ( 10-day EMA of ADL ) where: N = Money flow multiplier M = Money flow volume ADL = Accumulation distribution line CO = Chaikin oscillator \begin{aligned} &\text{N}=\frac{\left(\text{Close}-\text{Low}\right)-\left(\text{High}-\text{Close}\right)}{\text{High}-\text{Low}}\\ &\text{M}=\text{N * Volume}\left(\text{Period}\right)\\ &\text{ADL}=\text{M}\left(\text{Period}-\text{1}\right)+\text{M}\left(\text{Period}\right)\\ &\text{CO}=\left(\text{3-day EMA of ADL}\right)-\left(\text{10-day EMA of ADL}\right)\\ &\textbf{where:}\\ &\text{N = Money flow multiplier}\\ &\text{M = Money flow volume}\\ &\text{ADL = Accumulation distribution line}\\ &\text{CO = Chaikin oscillator}\\ \end{aligned} N=HighLow(CloseLow)(HighClose)M=N * Volume(Period)ADL=M(Period1)+M(Period)CO=(3-day EMA of ADL)(10-day EMA of ADL)where:N = Money flow multiplierM = Money flow volumeADL = Accumulation distribution lineCO = Chaikin oscillator

How to Calculate the Chaikin Oscillator?

Calculate the accumulation-distribution line (ADL) in three steps. The fourth step yields the Chaikin Oscillator.

  1. Calculate the Money Flow Multiplier (N).
  2. Multiply the Money Flow Multiplier (N) by volume to calculate Money Flow Volume (N).
  3. List a running total of N to draw the accumulation-distribution line (ADL).
  4. Compute the difference between 10-period and three-period exponential moving averages to calculate the Chaikin oscillator.

What Does the Chaikin Oscillator Tell You?

The Chaikin oscillator is a tool for technical analysts more than for fundamental analysts, who study a company’s business performance to garner information about the future direction of its stock price. Fundamental analysts believe that the skill needed to forecast the market is about being the most informed. Technical analysts believe that all known information is already priced into stocks and that patterns in the ups and downs of equity prices can better predict the market’s movements. Technical analysts use the Chaikin oscillator to find directional trends in momentum.

To appreciate how an oscillator is utilized, imagine that you’re at an auction. On one side of the room are accumulators or buyers. On the other side of the room are the distributors or sellers. When there are more sellers in the room than buyers, the price of the item being auctioned declines. Likewise, when buyers are in the majority, the item’s price tends to increase.

Technical analysts believe the balance of this relationship is what drives the financial markets. They measure this balance between buyers and sellers with multiple indicators, including accumulation-distribution indicators like the Chaikin oscillator.

Example of How to Use the Chaikin Oscillator

The purpose of the Chaikin oscillator is to identify underlying momentum during fluctuations in accumulation and distribution. Specifically, it applies the MACD indicator to accumulation-distribution rather than closing prices.

For example, a trader wants to determine whether a stock price is more likely to go up or to fall and MACD is trending higher. The Chaikin oscillator generates a bullish divergence when it crosses above a baseline. The baseline is called the accumulation-distribution line. A cross above that line indicates that traders are accumulating, which is typically bullish.

The Chaikin oscillator utilizes two primary buy and sell signals. First, a positive divergence is confirmed with a center-line crossover above the accumulation-distribution line, signaling a potential buying opportunity. Second, a negative divergence is confirmed with a center-line crossover below the accumulation-distribution line, signaling a potential selling opportunity.

A positive divergence signals a stock price is likely to rise, given the increase in accumulation. A negative divergence signals a stock price is likely to fall, given the increase in distribution.

Note

Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Chaikin Analytics. "Who is Chaikin Analytics?"

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description