Chaikin Oscillator

Type

Momentum/Volume Indicator compares closing price, range and volume 

History

The Chaikin Indicator or Chaikin Oscillator was derived from the Accumulation / Distribution line and was developed by Marc Chaikin.

Marc Chaikin uses the Chaikin Oscillator to monitor the flow of money in and out of the market - comparing money flow to price action helps to identify tops and bottoms in short and intermediate cycles. He suggests that it be used in conjunction with a 21 day Price Envelope and an Overbought/Oversold Indicator.

How does it work?

The Chaikin Indicator is basically the Moving Average Convergence Divergence (MACD) applied to the Accumulation / Distribution line. This makes the Chaikin Indicator an indicator to predict changes in the Accumulation / Distribution line.

Many of the same signals that apply to the MACD are also applicable to the Chaikin Indicator, but, it must be remembered that the Chaikin signals refer to the Accumulation / Distribution line and not the stock itself.

The Chaikin Indicator is good for adding momentum to the Accumulation / Distribution line, but can sometimes add too much and be hard to interpret. If the Chaikin seems too sensitive to movements from the Accumulation / Distribution Line then the moving averages may need altering. Change these within Settings<Indicators.

Trading Signals

The Chaikin can produce two Bullish signals:

As the Chaikin is an indicator of an indicator, a positive divergence should be confirmed by a bullish centerline crossover.

In direct contrast to the bullish signals, there are also two bearish signals generated from the Chaikin indicator:

A negative divergence should be confirmed with a bearish centerline crossover.

Settings

The Chaikin Oscillator is calculated by subtracting a 10 period exponential moving average from a 3 period exponential moving average of the Accumulation / Distribution line.

Sharechart Default:  14 period 10 period (exponential moving average), 3 period (exponential moving average)

Example

In the example below, Coca Cola Amatil Limited showed a Chaikin Oscillator divergence as price was falling. The reversal came from an engulfing day candlestick, which sparked a short-term rally from $5.80 to $6.20 approx.

Note: The example above was using a 13 period Chaikin indicator as shown below: