There are 3 main money flow indicators, OBV on balance volume, acc/dist accumulation distribution and CMF Chaikin money flow.
Each an improvement on the one before. OBV uses raw daily close data; acc/dist uses daily "close location values" (CLV) to plot a line; and CMF uses acc/dist and weighs it over a period of time, giving an over all positive negative pressure indication, above or below zero.
Strong positive pressure is seen when the CMF is above .25 and strong negative when the CMF is below - .25.
The reason you can see positive CMF with a price decline is found in the way the CLV is determined.
1.If the stock closes on the high, the top of the range, then the value would be plus one.
2.If the stock closes above the midpoint of the high-low range, but below the high, then the value would be between zero and one.
3.If the stock closes exactly halfway between the high and the low, then the value would be zero.
4.If the stock closes below the midpoint of the high-low range, but above the low, then the value would be negative.
5.If the stock closes on the low, the absolute bottom of the range, then the value would be minus one.
The CLV is then multiplied by the corresponding period's volume, and the cumulative total forms the Accumulation/Distribution Line.
CMF take this for 21 days and uses an average. So if several days close at the high end of the daily price spread, event though the price is declining, the high closes will effect the average. The more high EOD finishes the more positive pressure is injected into the formula. Every day the oldest days data is removed and the newest days added.
So with OBV all volume is added with a close above mid daily price range. With acc/dist only portions of the volume depending on the close position and CMF bundles the acc/dist line data for a period of time. Creating a pressure indication, more then flow indication.
Money flow is thought to precedes price. OBV is very basic (all or nothing), acc/dist balances data (to plot a direction line) and CMF combines data (showing pressure over time)
