AS Chakravarthy NCFM Academy Hyderabad Stock Market Technical Analysis : Chaikin Oscillator
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QUANTITATIVE ANALYSIS OF CHAIKIN OSCILLATOR
Stock Market Technical Analysis Courses Training in Hyderabad,
Mark Chaikin developed Chaikin Oscillator to measure the momentum of Accumulation Distribution by making use of MACD indicator. The Chaikin oscillator is considered to be more accurate the On Balance Volume Indicator.
The Chaikin Oscillator calculated by subtracting a 10 day exponential moving average of the AD line from a three day Exponential Moving average of the AD line and highlights the momentum implied by Accumulation and Distribution Line.
CHO= short EMA(A/D) – long term EMA(A/D)
The main purpose of the Chaikin Oscillator is to attempt to confirm price trends and attempts to warn of impending price reversals.
The Chaikin Oscillator has two main signals. The first signal is positive divergence confirmed in the centre line crossover above the AD line. Second is negative divergence confirmed with a centre line crossover before the AD line. Positive divergence is the sign of price gap up due to increase accumulation and negative divergence is a sign of price gap down due to a decrease in accumulation.
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Bullish and Bearish divergence alert traders to a momentum shift in buying or selling pressure that can foreshadow a trend reversal on the price chart. A bullish divergence forms when price moves to new low and the Chaikin oscillator forms a higher low. Higher- low shows selling pressure. Uptrend in the indicator into positive territory shows upside momentum in the AD line.
BOTTOMLINE
The Chaikin Oscillator is the momentum indicator for the AD line. Chaikin Oscillator turbo charges the AD line by measuring momentum. As the money flow oscillator it can be used in conjunction with pure price oscillators such as MACD or RSI. As with all indicators the Chaikin Oscillator should not be used as standalone indicator.
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