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How On Balance Volume (OBV) may show how money may be flowing into or out of a stock


OBV (On Balance Volume) measures buying and selling pressure. It was develop by Joe Granville in 1963. Joe Granville predict that volume precedes price.

OBV Calculation.

If the closing price is above the prior close price then:
Current OBV = Previous OBV + Current Volume
If the closing price is below the prior close price then:
Current OBV = Previous OBV  -  Current Volume
If the closing prices equals the prior close price then:
Current OBV = Previous OBV (no change)


It is very easy to use OBV. A rising OBV value show positive volume pressure that can lead to higher prices and vice versa.
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Chaikin Oscillator is an indicator for indicator



Chaikin Oscillator  is develop by Marc Chaikin. Its measures the momentum of the Accumulation Distribution Line using the MACD formula. 


Calculation

1. Money Flow Multiplier = [(Close  -  Low) - (High - Close)] /(High - Low)
  2. Money Flow Volume = Money Flow Multiplier x Volume for the Period
  3. ADL = Previous Accumulation Distribution Line + Current Period's Money Flow Volume
  4. Chaikin Oscillator = (3-day EMA of Accumulation Distribution Line)  -  (10-day EMA ofAccumulation Distribution Line)

Since Chaikin Oscillator is an indicator for indicator, it can be use to confirm other indicator such as RSI and MACD. Generally, buying bias is stronger when the indicator is positive area and selling bias is stronger when the indicator is negative. You can look for  crosses into positive area for bullish divergences and  negative area for bearish divergences.  Chaikin Oscillator  is not a stand alone indicator. You should use other indicator to confirm its buying or selling trend.
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How Chaikin Money Flow (CMF) to indicates buying and selling pressure



Marc Chaikin is a developer of Accumulation Distribution Line and also Chaikin Money Flow indicator.  Chaikin Money Flow indicator measure the volume of money flow over time that simply sums Money Flow Volume for 20 or 21 days.

Calculation based on 21 days.

1. Money Flow Multiplier = [(Close  -  Low) - (High - Close)] /(High - Low)

2. Money Flow Volume = Money Flow Multiplier x Volume for the Period

3. 201-period CMF = 201-period Sum of Money Flow Volume / 20 period Sum of Volume


Interpretation of Marc Chaikin is based on oscillator. A move into positive chart indicates buying pressure, while a move into negative chart indicates selling pressure. You should add buffer below and above zero line to avoid noise signal.  You can set threshold a little above zero (+0.05) for buying signal and below zero (-0.05) for selling signal to reduce bad signal and reduce whipsaws. You can use Chaikin Money Flow as supporting indicator for RSI and MACD.


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