Chaikin oscillator: How to analyze the financial market using chaikin oscillator indicator

Chaikin oscillator: How to analyze the financial market using chaikin oscillator indicator

By QuintoTrader | Quinto Trader | 27 Sep 2019


 

Chaikin oscillator is an oscillator indicator.

Being an oscillator indicator, Chaikin oscillator  was created by Mark Chaikin with the main objective of helping the trader to know when the market is in an upward or downwards trend.

According to Mark Chaikin,Chaikin Oscillator  is being used to measure the momentum of the accumulation/distribution line based on  MACD(Moving Average Convergence Divergence).

Since it is based on accumulation/distribution ,Chaikin oscillator can therefore be considered to be on the basis of divergence(that is market price short moving in opposite direction to that of the chaikin oscillator curve after which it starts moving in same direction)

Chaikin oscillator can also be considered to be on the basis of overbought/oversold market.

Since chaikin oscillator is an oscillator,it therefore has an oscillation at point 0 ranging between -100 to +100.

According to Mark chaikin, Chaikin oscillator is based on 3-period and 10-period thus its value is being derived by following the formula as follows;

 

-By subtracting the 10-period Exponential Moving Average of Accumulation/Distribution indicator from a 3 period exponential moving average of Accumulation/Distribution indicator thus we have;

 

Chaikin Oscillator =EMA(A/D,3)-EMA(A/D,10)

Concept of divergence

Since chaikin oscillator is based on divergence,it therefore follows that when the  price in the market is moving downwards while the chaikin oscillator curve is moving upwards,then a reversal in the market price will take place thus the market will also start moving upwards in the same direction with the chaikin oscillator curve.On the other hand,if the price in the market is moving upwards while the chaikin oscillator curve is moving downwards,a reversal price in the market will take place thus the price in the market will also start moving downwards in the same direction as with the chaikin curve.This is indicated as from the candlesticks chart below;

 

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From the candle sticks chart above,there are 3 points,point A,B and C. Point A represents the chaikin oscillator curve while point B and C represent the downwards and upwards market respectively.

At point C,the market was moving downwards while the chaikin oscillator curve was moving upwards.The market therefore reversed and start moving upwards in the same direction as the chaikin  oscillator curve thus an indication of an upward market movement.

At point B,the market was moving upwards while the chaikin oscillator curve was moving downwards.The market therefore reversed and start moving downwards in the same direction as the chaikin oscillator curve thus an indication of a downwards market movement.

 

Concept of overbought and oversold

Also ,since chaikin oscillator is an oscillator and it has an oscillation at point 0 ranging between -100 to 100,it can therefore enable a trader to know when to enter a buy or a sell position.When chaikin oscillator curve falls below 0 at below -50,that will be an indication that the market has become oversold thus signaling the trader to close any sell position and enter a buy position since the market will start moving upwards while when the chaikin oscillator curve rises above 0 at above 50,that will be an indication that the market has become an overbought market thus signaling the trader to close any buy position and enter a sell position since the market will start moving downwards. This is indicated from the candlesticks chart below;

 

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From the candlesticks chart above, there are two points, point A and B. Before point A, the market was initially moving downwards. At point A, the chaikin oscillator then falls below -50 at below 0 thus indicating an oversold market condition.This signals the trader to close any sell position at that point and opens a buy position since the market is starting to move upwards at point A. Before point B, the market was moving upwards. At point B, the chaikin oscillator rises above 50 at above 0 thus indicating an overbought market condition.This signals the trader to close any buy position at that point and opens a sell position since the market is starting to move downwards at point B.


Recommendation:If you are a day trader,just use 1 min,5min,15 min and 30 min time frame while if you are a swing trader just use 1 hour and above time frame if you want chaikin oscillator indicator to work well for you

Recommendation 2:Use common sense while trading with chaikin oscillator tool

 

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QuintoTrader
QuintoTrader

Trader, Blockchain Technologist and Contentpreneur. Also founder and CEO @ Quinto Trader


Quinto Trader
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