How to use the Chaikin volatility indicator

 

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MACD and the Chaikin Oscillator

Chaikin Oscillator. Chaikin's Oscillator (CHO) is the difference of moving averages of Accumulation/Distribution.

If the indicator is below zero, as a rule, the price is likely to continue moving downward. Consequently, traders should take into account a bearish outlook. Moreover, using this feature one should take into account the fact that in most cases divergences and convergences of the Chaikin index consist of 2 or 3 consecutive dynamic movements.

This rule allows to filter a considerable amount of single signals, as they are often not worked out by the market. The one of the most interesting methods of the CHO's application is its building and the market analysis combined with sliding average SMA, 3 , moved by 1 bar to the right in relation to the chart of the Chaikin Oscillator.

By using this approach, it is necessary to respond to the situation when sliding average moving downward crosses lines of the index in terms of the probability of price drop and upward in terms of price rise.

In this case the signal is leading. However, it can be false if divergence and convergence have not formed on the oscillator. Despite the decrease in the number of signals, usage of additional filter provides you with better signal sampling. Open trading account Open demo account. Download Back to the list. Win Lambordghini from InstaForex! Pattern Graphix - notices things you never will!

This means that when price climbs, so does buying. Similarly, price and selling usually fall together. One of the main uses of the CO is to help detect pending price reversals. Chaikin recommended that his oscillator should be best used in conjunction with other indicators that could confirm its readings.

You could consider that volume is the fuel for price. As such, a rising price channel cannot be sustained if the CO values begin to fall because this is an indication that buying volume is declining. The CO also provides you with the option of being able to examine its historical data. You might be able to detect important trends by taking advantage of this powerful facility.

As such, Chaikin also stated that the main strength of his oscillator was its ability to detect bottoms and tops when its direction begins to diverge from that of price.

You could also use the CO to help you detect new trading opportunities.