Monday, July 09, 2012 11:02:47 AM
Most indicators are based on momentum shifts in price only. Technical pattern analysis is structured within the trading range and chartists look for resistance and support tests in many forms. CMF is different. It's based on a study of volume trends, and who is in charge (buyers or sellers) of trading activity. The indicator was developed by Marc Chaikin, an experienced trader who recognized that stock trends were usually in either an accumulation (buying) or distribution (selling) phase; but that these phases weren't visible on a price-based chart. Chaikin’s first formula is the well-known accumulation/distribution (A/D) line, which summarizes daily results based on buying and selling action. Each session is controlled by buyers or by sellers, and A/D summarizes that control. As a momentum oscillator, A/D identifies which side has greater strength each day using volume flow.
The ultimate value to CMF is that it often acts as an early indicator of coming price reversal. This should be confirmed by other technical signs; but when you're working with an advance indicator like CMF, you can beat the crowd by confirming the apparent shift in control, and make your entry or exit before everyone else.
Read more: http://www.minyanville.com/businessmarkets/articles/stock-market-technical-analysis-technical-analysis/10/7/2010/id/30446#ixzz208bdfItP
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