Blockchain and Cryptocurrency Advanced - CMF indicator

The CMF indicator which is the short for the Chaikin Money Flow Indicator is basically a technical indicator that measures the volume-weighted average of accumulation and distribution of any cryptocurrency asset over a particular period of time. The CMF indicator has proven to be a very powerful indicator for identifying trends in the market. The CMF indicator was developed in the 1980s by Marc Chaikin with the sole purpose of monitoring and measuring the accumulation and distribution of an asset over a particular period of time. The Chaikin Money Flow Indicator has a default period value of 21.

The CMF indicator oscillator moves between +1 and -1. When the CMF oscillator line moves above 0 or moves below 0, it can strongly indicate that there are changes in the money flow and also the buying momentum and selling momentum. When the CMF oscillator line moves into the positive readings above 0 and remains above 0, it indicates that buying pressure is present in the market and the strength of the uptrend. When the CMF oscillator line moves into the negative readings below 0 and remains below 0, it indicates that selling pressure is present in the market and the strength of the downtrend. Also, When the CMF oscillator line ranges around the 0 center line and moves between -0.05 and 0.05 values, this indicates that there is indecision in the market or decision making period in the market and that the buying pressure and selling pressure are relatively at an equilibrium. This means that there isn’t any clear market direction or trend.

CMF indicator on the AAVE/USDT Chart

Chaikin Money Flow Calculation

When it comes to calculating the Chaikin Money Flow, there are three steps that needs to be calculated; Money flow multiplier, Money flow volume and the CMF value.

Calculating the Money Flow Multiplier (MFM)

MFM = (CV – LV) – (HV – CV) / (HV – LV)

Where;

Closing value = CV
Highest value = HV
Lowest value = LV

Calculating the Money Flow Volume (MFV)

MFV = (MFM) x (PV)

Where;

Money Flow Multiplier = MFM
Period Volume = PV

Calculating the CMF value

CMF = (N Average of the set period Money Flow Volume) / (N Average of the Volume)

Where;

Number of periods = N

Let’s take for instance, AAVE/USDT

Closing value (CV) = $350
Lowest value (LV) = $315
Highest value (HV) = $368
Period Volume (PV) = $85,845
Total period volume = $9,854,630
Number of periods (N) = 21.

Calculating Money Flow Multiplier (MFM)

Using MFM = (CV – LV) – (HV – CV) / (HV – LV)

MFM = (350 - 315) - (368 - 350) / (368 – 315)
MFM = (35) - (18) / (53)
= 17 / 53
= 0.3208
MFM = 0.32

Calculating Money Flow Volume (MFM)

Using MFV = (MFM) x Period Volume
Money Flow Multiplier (MFM) = 0.32
Period Volume (PV) = $85,845.

MFV = 0.32 x $85,845
MFV = 27,470.4

Calculating CMF

Using CMF formula

CMF = 27,470.4 / $9,854,630
CMF = 0.0028

Therefore,
The CMF = 0

This means that the CMF oscillator line is around the 0 center line. This indicates that there is indecision in the market and neither buyers nor sellers are in control of the market at that particular period of time.