Chaikin Money Flow (CMF) indicator: A complete guide for beginners

 Technical analysis has grown immensely since its advent in late 1800s and is ever strengthening. But the objective remains unchanged- to recognize early signs of buying and selling pressure to get a serious edge over others. This is where volume comes into play. While price tells you what's happening, volume tells the force behind the happenings. That is why volume and volume indicators are so crucial- and one of the most insightful among them is Chaikin Money Flow.

In this post, you will master Chaikin Money Flow (CMF) indicator: how it works, how to use it effectively and how to combine it with other indicators to build a solid strategy.Whether you’re just getting started or looking to sharpen your edge, this guide will serve as a practical reference.

Let's get started.

What is Chaikin Money Flow (CMF) indicator?

Developed by Marc Chaikin, Chaikin Money Flow is a volume-based indicator that shows buying pressure and selling pressure in a stock over a specified period- typically 21 period. This is an oscillator that blends the price and volume data to determine whether money is flowing into or out of the stock.

This blend of volume and price is what that makes this indicator so powerful.

Understanding Chaikin Money flow (CMF) signals-

As stated earlier, CMF is an oscillator whose values oscillate above and below 0 (Zero). Zero line, thus, is a key reference point.

CMF above Zero- suggests there is a buying pressure in the stock or security.

CMF below Zero- indicates there is a selling pressure in the stock or security.

Besides its value (positive or negative), the CMF's inclination is also significant.. A rising CMF suggests an increasing buying pressure and a falling CMF line suggests an increasing selling pressure.

CMF crossing above zero is a bullish signal while a crossing below zero is bearish signal.

Let's understand the Chaikin Money Flow (CMF) signals through a chart.

Best settings for Chaikin Money Flow-

The default settings for CMF is 21 and it works fine in most of the situations. I use this default settings in all my strategies, however, you can change the settings based on your own trading style and preferences.

The general guideline while tweaking the CMF settings are:

•  For day trading, use shorter periods, for example, 10–14 periods.This enables you to get quicker signals, but the downside is probability of getting fake signals is increased.
• For swing trading, 21 period settings works fine. Some traders also use 28 period for cleaner signals.
• To smooth out short-term volatility in long-term trading, employ longer periods (e.g., 35–45).

These are just generalised guidelines, however, the best settings for CMF are highly subjective and depend on individual preferences, trading styles and experience with the indicator. Whatever settings you choose, make sure you have solid backtesting data to support your settings.

How to use CMF in trading strategies?

While trading, I use CMF to validate my buy signals or breakout. A buy signal or a breakout has greater probability to be valid if volume supports it and there is enough buying pressure. Conversely, a signal or a breakout becomes less reliable if it is not accompanied with a buying pressure or volume.

Let's understand this through a couple of charts.

In the chart above, green line on the price chart is a 50 period MA. Price crossing above 50 MA is considered a buy signal. However, on the left-hand side of the chart, notice that the buy signal is false as the price fell after crossing the 50MA. CMF foretells this fake buy signal, as CMF reading was below 0 when the signal was generated. However, on the right-hand side of the chart, CMF above 0 validates the buy signal as shown and notice that price goes up.

The chart above shoes a breakout signal duly validated by CMF.

CMF divergences- a powerful signal- Another way of using CMF in a trading strategy is by spotting divergences. CMF divergence, like an RSI divergence, suggests a reversal might be on the horizon. By combining CMF divergence with price action and other indicators, you can spot a reversal early, enabling you to make early entry and more profits.

A bullish divergence occurs when price makes a lower low but CMF makes a higher low and a bearish divergence occurs when price makes a higher high but CMF makes a lower high.

Let's see this in a couple of charts.

The chart above shows a bullish divergence. Notice that the price is making a lower low, as shown by trend-line, but CMF makes a higher low suggesting the selling pressure might be lessening and reversal might be on the cards.

The chart above displays a bearish divergence. The price makes a higher high while CMF makes a lower high, suggesting a downside reversal might be coming as buying pressure is decreasing.

CMF buy and sell signal- Some traders use CMF to get buy and sell signals. When CMF crosses above zero it is construed as a buy signal and CMF crossing below 0 is considered as a sell signal. However, this signal must not be used in isolation and should always be combined with price action as well as other indicators. Personally, I don't use these signals to trade.

CMF in multi indicator strategies-

CMF in combination with other indicators and price action can be used to make powerful and profitable trading strategies.

CMF is part of all my trading strategies.

For example, this Moving average crossover strategy uses MA, RSI and CMF in combination to get profitable trades. 

Another example of CMF in multi indicator strategy is by using CMF in combination with MACD, Moving average, and RSI. In this strategy, a 200 period MA is utilized to know the overall trend direction. Price above 200 MA with MA itself inclined upwards suggests the trend is up. When overall trend is up only buy signals are taken and sell signals are overlooked.Then you utilize MACD to get buy signals. The RSI and CMF then validate the signal. RSI above 50 and CMF above 0 suggest the buy signal is valid.

See this strategy in a chart.

Pros and Cons of CMF-

Pros of CMF-

• Unlike other indicators that are based on price or volume alone, CMF integrates these data (price and volume), offering a complete view of the market.
• Accurately identifies buying and selling pressure in most cases.
• It effectively identifies and validates divergences, revealing early signs of reversal.
• Works across multiple time frames.

Cons of CMF-

• Prone to false signals in the sideways market.
• In markets or stocks with inconsistent volume, CMF becomes less reliable.
• Lags in volatile or choppy markets.

Final Thoughts: Should you use Chaikin Money Flow (CMF)?

The Chaikin Money Flow indicator is a powerful tool for any trader who wants to combine price action with volume dynamics. Whether you’re trading stocks, forex, or crypto, CMF can add context to your decisions and help confirm the strength of a move.

However, like all tools in technical analysis, CMF works best when used alongside other indicators and price structures. Think of it as a lens, not a crystal ball..

Ready to give it a try? Load up your chart, apply CMF, and start testing how this underrated indicator fits your trading style.