The Chaikin Oscillator is a technical indicator that is used to determine the strength and direction of a trend. It is a variation of the MACD indicator, but instead of standard price indicators, it uses the Accumulation/Distribution Line indicator.
How does the indicator work?
The tool is based on the difference between the Accumulation/Distribution Line and the exponential moving average (EMA) of that line.
The indicator line reflects the balance between buying and selling during a certain period of time.
Goals of the indicator:
– Determining the strength and direction of the trend on different time intervals.
– Identification of overbought/oversold zones.
– Confirmation of signals of other technical indicators.
Chaikin oscillator allows you to track the inflow and outflow of cash in relation to a financial asset. By comparing the dynamics of this cash flow with the movement of the price of the asset itself, you can identify local peaks and troughs at different time intervals.
How to apply in trading?
– Positive values of the oscillator indicate the prevalence of buying, negative values – the prevalence of selling.
– Crossing the zero mark from top to bottom can be a signal to sell, and from bottom to top – a signal to buy.
When the price of an asset is in an overbought or oversold zone, but the Chaikin indicator does not reach its previous highs or lows and then changes direction, this indicates the occurrence of divergence.
– Divergences between the price dynamics and the oscillator (divergences) can predict a trend reversal.
