Constructing a Chaikin oscillator from the accumulation-distribution line

Start from the accumulation-distribution line

The oscillator is constructed from an accumulation-distribution line that combines close location with volume, rather than from price-only momentum. That line is a session series: a close above the high-low midpoint is treated as accumulation, and a close below that midpoint is treated as distribution.

The session midpoint is the average of the session high and low. It is the rule used to assign that session’s accumulation or distribution.

Normalize the lookback with volume

The Chaikin oscillator is a signed volume-normalized reading. It is formed by summing accumulation-distribution values over a chosen lookback and dividing by the same-period volume sum.

The oscillator equals the 21-period sum of accumulation-distribution values divided by the 21-period sum of volume. A 21-day window is treated as about one month, and other windows are allowed.

Grade magnitude

Readings from 0 to 0.10 are labeled weak buying, and readings above 0.10 are labeled bullish. Readings from 0 to -0.10 are labeled weak selling, and readings below -0.10 are labeled bearish.

Readings above 0.25 are labeled very bullish, and readings below -0.25 are labeled very bearish. Remaining above 0.20 for three months is treated as sustained heavy buying.

Grade duration and persistency

How long the oscillator stays above or below zero is used as evidence of sustained buying or sustained selling. Persistency of money flow is the share of a chosen lookback in which the oscillator remains above zero. One stated preference is more than 90% of readings positive over six months.

A lower oscillator peak is read as fading buying pressure. A higher oscillator low is read as fading selling pressure.

Read a breakout with volume-price analysis

Volume-price analysis is the joint reading of price structure with the oscillator’s sign, size, and time spent above or below zero. A 10% to 15% price pullback that keeps the oscillator positive is treated as a constructive volume-price setup.

The sign and persistence of the oscillator are used to judge whether a chart-pattern breakout is occurring under accumulation or distribution.

Construction limits

Spike extremes and large gaps are construction limits. The oscillator can sit at a peak into a spike top. A gap may not appear in the high-low midpoint, so the oscillator can move opposite the gap.