Chaikin Money Flow is displayed as a green/red oscillator around a 0-line, ranging from +100 to -100, with green regions representing net buying pressure, and red regions representing net selling pressure.

Because of the way the calculation was designed, money flow persistency (significant regions of green or red over a 6-9 month period), can be signs of accumulation or distribution by major institutions which have a disproportionate effect on future price movement. 

This is true even though the calculation looks only at price/volume activity, rather than directly monitoring institutional order flow.

A short-term money flow divergence —where price rises but Money Flow stays negative, or vice versa—can indicate an increased risk of a short-term reversal.

Understanding Chaikin Money Flow
Not all price moves are created equal—a stock may go up while “hitting its head on the ceiling” or “bouncing off the floor.”

Chaikin Money Flow looks “inside” a stock’s trading activity to distinguish price movements which are likely to be supportable based on price/volume patterns, from those which are not. Chaikin Money Flow looks at two important factors to determine the likely sustainability of a price move:

• Has the stock been closing strong during this move?
• Has the move happened on relatively high or low volume?

Buying pressure is represented by stocks which have been closing high in their daily range, on high volume. Selling pressure is represented by stocks which have been closing low in their daily range on high volume.

Money Flow Persistency
When identifying buy candidates, look for evidence of strong money flow persistency, meaning significant regions of green over the last 6-9 months.

The primary input into your stock selection process should be a stock’s Chaikin Power Gauge rating and its recent history. However, backtesting has shown better historical performance from Bullish stocks when confirmed by strong money flow persistency.

It should not be a “deal-breaker” if a stock has some regions of red, but prefer stocks with strong Money Flow Persistency when possible.

Conversely, weak money flow persistency can confirm a Bearish rating.

Money Flow Persistency is one of the 20 factors ranked in the Chaikin Power Gauge Rating model.