Chaikin Oscillator Indicator: How It Works, What It Measures, and How to Use It

2025.08.15 2025.08.15
Chaikin Oscillator: What It Is, How It Works, and How to Use It in Trading

Alex Rodiоnovhttps://www.litefinance.org/blog/authors/alex-rodionov/

The Chaikin Oscillator Indicator is a popular technical analysis tool designed to measure the direction and strength of money flow. It is based on two exponential moving averages (EMAs) and the accumulation/distribution line (ADL). This momentum indicator helps traders predict the trend direction, identify bullish or bearish pressure, and spot early signals for opening/closing trades.

The oscillator can be used for trading both traditional financial assets and cryptocurrencies. It detects bullish and bearish divergences, enabling more accurate price analysis.

Major Takeaways

• The Chaikin Oscillator was developed by Mark Chaikin and is used to analyze money flow volume.
• The indicator is calculated as the difference between two exponential moving averages of the Accumulation/Distribution Line (ADL).
• The indicator combines volume and price movement data in a single analytical tool.
• Allows you to effectively identify bullish and bearish divergences in rising and falling markets.
• Helps predict the trend direction and assess the strength of buying and selling pressure.
• The Chaikin Oscillator is most effective when combined with other technical indicators.
• Suitable for short-term and medium-term trading and can be used in intraday strategies.
• The indicator becomes less effective in illiquid and sideways markets and can generate false signals.

What Is the Chaikin Oscillator?

The Chaikin Oscillator (CO) is a technical indicator that displays the difference between the 3-day and 10-day exponential moving averages (EMAs) of the accumulation/distribution line (ADL). The Chaikin Oscillator measures the money flow volume and helps determine whether bulls or bears are dominating the market at a given moment.

Positive Chaikin Oscillator values point to bullish sentiment, while negative values signal bearish pressure. The indicator helps traders predict trends, identify accumulation and distribution phases, and pinpoint trend reversals.

History and Creator: Who is Marc Chaikin?

Marc Chaikin is a well-known analyst who started his career in the financial industry in the 1960s. He designed indicators that help traders assess capital movements. Among his main developments are two technical analysis tools: the Chaikin Oscillator and the Chaikin Money Flow indicator. Both indicators are based on the analysis of the accumulation/distribution line (ADL), which shows whether funds are flowing into or out of an asset.

It is crucial to understand money flow if you work with trends or engage in swing trading, especially when trading bullish stocks on the US stock market or cryptocurrencies.

How Does the Chaikin Oscillator Work

The Chaikin Oscillator provides traders with insight into market direction by analyzing money flow. It compares two moving averages calculated using the accumulation/distribution line (ADL).

The ADL reveals how trading volume is related to asset movement. The line analyses the closing price relative to the daily trading range. If the price closes near the high, this indicates capital accumulation, when large players are actively buying an asset, and demand is growing. If the closing price is near the low, then bears prevail in the market, money flows out of the asset, and the market is in a distribution phase. Trading volume plays an essential role. If the volume is high when prices are increasing, then demand is growing, and if prices are declining amid high volume, then selling pressure is mounting.

The difference between the short-term and long-term moving averages shows whether the money flow is strengthening or weakening. This data allows traders to spot trend reversals. If the Chaikin Oscillator moves above zero, buying pressure is intensifying, while a drop below zero means that bears are gaining ground.

Moreover, the Chaikin Oscillator is a useful tool for spotting bullish or bearish divergences, which emerge when the price moves in one direction but the oscillator moves in the other. Such divergences can serve as early signals of a trend reversal. To spot the most accurate entry points, traders often use the Chaikin Oscillator in combination with trend lines and other indicators.

How To Calculate Chaikin Oscillator

To calculate the Chaikin Oscillator, you first need to determine the value of the accumulation/distribution line (ADL). The ADL is based on the daily calculation of the Money Flow Multiplier (MFM) and trading volume:

where:

CP – daily closing price;

Max, Min – the maximum and minimum price values during the day.

Next, multiply the MFM by the volume to determine the money flow for the trading session.

Then, build the ADL by cumulatively adding these values over time. From this line, calculate two exponential moving averages (EMAs): one with a 3-day period and the other with a 10-day period. The difference between these two EMAs gives the value of the Chaikin indicator (CI).

This formula helps you track price momentum, spot potential trend reversals, and measure the strength of price moves. In simple terms, when the short EMA crosses above the long EMA, it gives a buy signal. When it crosses below the long EMA, it generates a sell signal.

Additionally, the indicator reflects the ADL movement and whether it diverges from the price chart. This helps assess how strongly the current trend is supported by money flow.

However, you will not see the ADL, EMA(3), and EMA(10) lines in most trading terminals. The Chaikin indicator is usually displayed as a single line above and below the zero value. On the one hand, this makes it easier to interpret the indicator values, but on the other hand, it makes the indicator signals less accurate.

Image 1. Chaikin Oscillator and Nasdaq-100 Index Performance

How to Use the Chaikin Oscillator in Trading

The Chaikin Oscillator is used to assess the strength and direction of a trend, as well as to determine entry and exit points. The oscillator is particularly effective for trend trading, helping to identify when momentum is strengthening or changing.

The Chaikin Oscillator generates signals by measuring the momentum of the ADL. The primary signal is the zero line crossover. If the oscillator rises above zero, it signals the beginning of growth. If it falls below zero, there is a risk of a correction or price decline. Bullish and bearish divergences between the indicator and the price chart are also analyzed.

Moreover, the oscillator reveals whether there is an accumulation or distribution phase in the market. Positive indicator values point to strong bullish demand, while negative values indicate increased bearish activity. This data can signal trend reversals in advance.

Using the Chaikin Oscillator in conjunction with other indicators, such as the Moving Average Convergence Divergence (MACD) indicator, the Relative Strength Index (RSI), or trend lines, allows for more reliable signals. At the same time, trend lines can be plotted directly on the oscillator chart to identify bullish and bearish divergences.

Note: The Chaikin Oscillator works best when the trend is clear. During sideways movement or low volume, it can give false signals.

The chart below shows a divergence between Apple’s share price and the Chaikin Oscillator. Both the MACD and moving averages point to a potential price decline. A divergence has formed near the $215 level, with the CO line crossing below the zero mark. The price is trading below the moving averages, and the MACD is in the negative zone, signaling possible selling pressure. However, the price is still moving sideways in a range between $195 and $215, which makes the signal weaker. However, based on the overall indicator setup and considering risk management, traders may consider opening a short position with a stop-loss order at $215 and a take-profit order at $170.

Image 2. The Chaikin Oscillator and other indicators signal a price decline.

Real Chart Examples of Using the Chaikin Oscillator

The Chaikin Oscillator helps traders spot shifts in money flow, identify potential trend reversals, and make informed trading decisions. Unlike many other momentum indicators, the CO not only considers market movement but also volume, making it particularly valuable during periods of high market activity.

This indicator provides a deeper understanding of market dynamics by using an accumulation/distribution line (ADL) and two exponential moving averages. It reveals not only the price trajectory but also whether the movement is accompanied by capital inflows or outflows.

Specifically, the zero line crossovers and divergences between the price and oscillator readings provide clear signals. Let’s explore some typical scenarios of the CO application.

How the Oscillator Could Have Helped You Buy on Time

A key signal from the Chaikin Oscillator is when it crosses above the zero line, indicating that volume is supporting price movements and money is returning to the asset. If the price is rising alongside, it can signal the beginning of a bullish trend, particularly in fast-growing sectors like technology. When this increase in oscillator values is confirmed by price growth and other indicators, such as MACD or candlestick patterns, traders may consider opening a long position.

A bullish divergence occurs when the price moves to new lows and the Chaikin Oscillator forms a higher low, signaling a potential bullish reversal. This suggests that selling pressure is easing even though the price still appears weak.

Example: The SP500 index hit the resistance of $5,650 in July-September 2024. In September, the Chaikin Oscillator started to increase, indicating capital inflows. Once the CO rose above zero, the MACD indicator generated a buy signal, resulting in a 500-point rally to $6,100.

The Chaikin indicator flashed another strong signal between September and November 2024 — a bullish divergence. Even though the CO dropped sharply, the index refused to break below the 50-day moving average. Not long after, the price climbed about 250 points to $6,150.

Image 3. The Chaikin Oscillator rises above zero, the index breaches the resistance level, and MACD gives a buy signal. The bullish divergence indicates that the trend will continue.

How It Can Warn About a Price Drop

When the oscillator crosses the zero line from above, it signals a waning buyer interest and a possible trend reversal. This is especially relevant when trading at highs, as the signal can warn of a correction.

A bearish divergence occurs when the price reaches a new high, while the oscillator declines, indicating a momentum change. Such a signal often precedes a price decrease.

Traders should consider other indicators, support and resistance levels, and fundamental factors to increase the reliability of the indicator signals.

Let’s look at how the Chaikin Oscillator can be applied to the crypto market. In May 2025, Solana’s rally stalled at $180, where the 200-period moving average acted as resistance. Soon after, a divergence developed between the price and the CO readings, signaling a potential depreciation.

Image 4. A bearish divergence and the Chaikin Oscillator dropping below zero suggest that SOL will continue to slide.

What Are the Advantages and Disadvantages of the Chaikin Oscillator?

The Chaikin Oscillator is a powerful technical analysis tool. However, besides its advantages, it has a number of disadvantages.

General advice: open trades during corrections in the direction of the prevailing trend. Ignore divergences that go against the trend or confirm them with other indicators.

Chaikin Oscillator vs Other Indicators

Let’s compare the Chaikin Oscillator with other popular technical indicators.

Chaikin Oscillator vs MACD

Unlike MACD, which is based solely on price movement and compares two moving averages, the Chaikin Oscillator factors in money flow volume, giving more profound insight into market activity. While MACD signals trend changes through price movement, the Chaikin Oscillator shows whether that movement is supported by money flow.

Let’s examine the readings of these indicators on the BTCUSDT chart. In contrast to MACD, the CO provides more frequent buy and sell signals. However, MACD can serve as a filter. If the MACD line is above zero and the trend is upward, then buy signals generated by the Chaikin Oscillator are confirmed, and traders can open long positions. If the trend is bearish and the MACD value is below zero, then the Chaikin Oscillator signals can be used to open short trades.

Image 5. Comparing MACD and Chaikin Oscillator indicators

Chaikin Oscillator vs RSI

The RSI (Relative Strength Index) measures the magnitude and speed of price changes over a specified period. It identifies overbought and oversold conditions but does not factor in trading volume or money flow, which can make it less reliable during strong trends or trend reversals. The Chaikin Oscillator, on the other hand, considers not only where the price closes within its range but also how it corresponds with trading volume.

When using the Chaikin Oscillator (CO) with the RSI, you should ignore the CO sell signals if the RSI is above 50%. Conversely, if the RSI is below 50%, avoid making buy trades. Initiate all trades in the direction of the trend: buy when the CO is above zero and the RSI is above 50, and sell when the CO is below zero and the RSI is below 50.

Image 6. Comparing the Chaikin Oscillator with the RSI

Chaikin Oscillator vs ROC

The ROC (Rate of Change) indicator measures the percentage change in price over a specific period, helping assess the speed at which quotes are changing. However, like the RSI, it does not capture volume and money flow. This difference makes the Chaikin Oscillator a particularly valuable technical analysis tool, since it combines price momentum and volume and helps identify divergences between price and capital flow.

When using the Chaikin Oscillator with the ROC, you should open long trades when the CO and ROC lines are above zero, and short trades when the CO and ROC indicator lines are below zero.

Therefore, the Chaikin Oscillator is distinguished from other indicators due to its ability to consider not only the price direction but also the strength of the movement. This is especially valuable when analyzing volatile assets.

Image 7. Comparing the Chaikin Oscillator with the ROC

Difference Between Chaikin Oscillator and Chaikin Money Flow

The Chaikin Oscillator (CO) and the Chaikin Money Flow (CMF) are two technical indicators created by Mark Chaikin to analyze money flow. Despite the similar concept, they differ in terms of calculation method, application area, and types of trading signals.

The Chaikin Oscillator is a momentum indicator calculated as the difference between two exponential moving averages of the accumulation/distribution line (ADL). It is used to identify short-term changes in the money flow direction and helps highlight divergences that may indicate an imminent trend reversal.

Meanwhile, the Chaikin Money Flow indicator gauges the direction and strength of buying and selling pressure over a specified time period. It takes into account the closing price relative to the daily range and trading volume. Besides, the CMF helps understand whether a financial instrument is in the accumulation or distribution phase. Thanks to these features, the indicator is more resistant to short-term fluctuations and can be used for medium-term analysis.

The main difference between the two lies in the type of data used for calculation and the time horizon. The CMF estimates the direction and magnitude of accumulation and distribution over a specified period, while the Chaikin Oscillator shows the rate of change in money flow.

The screenshot below shows that the CO reacts faster to changes than the CMF. However, the strongest signals appear when both indicators are above or below zero. For example, in April 2025, the CO and CMF were in the positive zone, signaling a 30% increase in BTC prices. Both indicators complement each other and are often used in tandem to enhance signal accuracy.

Image 8. Comparing the Chaikin Oscillator and the Chaikin Money Flow

Conclusion

The Chaikin Oscillator is a powerful tool developed by Marc Chaikin that allows you to evaluate the market in terms of money flow. It helps identify the direction and change of a trend, understand the strength of bullish and bearish pressure, and predict possible trend reversals.

The indicator is handy for analyzing cryptocurrency and stock markets, where volume plays a significant role. The tool works effectively when interpreted correctly and combined with other indicators. Try trading with the Chaikin Oscillator on the LiteFinance demo account.