May 14, 2018 at 6:27 am #144
Chaikin Oscillator (CHO) is the difference between the moving average indicators Accumulation / Distribution.
“The concept of this oscillator rests on three main points. First, if the stock or index closes above its average for the day (which is defined as [maximum + minimum] / 2), then on that day there was an accumulation. The closer the closing level of a stock or index to the maximum, the more active the accumulation. Conversely, if the stock closes below the average price of the day, then that day there was a distribution. The closer the share closes to the minimum, the more active the distribution.
The second position: a steady rise in prices is accompanied by an increase in trading volume and a strong accumulation of volume. Since volume is a kind of fuel that feeds the growth of the market, the lag in volume with an increase in prices indicates a lack of fuel to continue the recovery.
Conversely, a fall in prices is usually accompanied by a low volume, and ends with a panic liquidation of positions by institutional investors. Thus, first, there is an increase in volume, then a fall in prices with a reduced volume, and only when the market approaches the base, some accumulation takes place.
The third provision is that with the help of the Chaikin oscillator, you can track the amount of money entering the market and leaving it. Comparison of the dynamics of volume and prices allows you to identify the top and bottom of the market – both short-term and medium-term.
Since there are no error-free methods of technical analysis, I recommend that this oscillator be used in conjunction with other technical indicators. The reliability of short-term and medium-term trading signals will be higher if, together with the Chaikin oscillator, use, for example, Envelopes based on the 21 day moving average and any overbought / oversold oscillator.
The most important signal of the Chaikin oscillator occurs when prices reach a new high or low (especially at the level of overbought or oversold), and the oscillator can not overcome its previous extreme value and it unfolds.
Signals in the direction of the medium-term trend are more reliable than signals against the trend.
Confirmation by the oscillator of a new high or low does not mean that prices will continue to move in the same direction. I regard this event as insignificant.
There is another way to use the Chaikin oscillator, in which changing its direction is considered a signal to buy or sell, but only if it coincides with the direction of the price trend. So, if the stock is on the rise and its price is above the 90-day moving average, then turning the oscillator curve up in the negative range can be considered a buy signal (but only if the stock price is above the 90-day moving average – not lower than it).
Turning the oscillator down in the positive (above zero) range can be considered a sell signal only if the share price at this point is below the 90-day moving average closing price.
Calculation of Chaikin Oscillator
The Chaikin oscillator is determined by subtracting the 10-period exponential moving average of the Accumulation / Distribution indicator from the 3-period exponential moving average of the same indicator.
CHO = EMA (A / D, 3) – EMA (A / D, 10)
EMA – exponential moving average;
A / D is the value of the Accumulation / Distribution indicator.
Download Chaikin Oscillator
You may download Chaikin Oscillator for MetaTrader 4 from here.
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