FOREX ARTICLES

Marc Chaikin has created this volume indicator, continuing work of his predecessors Joe Granville and Larry Williams. Chaikin's Oscillator is a difference of moving averages of the accumulation/distribution indicator.

Marc Chaikin presents an explanation of the volume indicator of accumulation/distribution. " The technical analysis both market indexes, and separate shares should include studying of tenders' volume to help an analyst to make true impression about inwardness of the concrete market.

The analysis of volume allows to make out internal force or market weakness. Frequently only on a divergence of volume and the prices it is possible to learn about a forthcoming important market turn. Though technical analysts always gave great value to tenders' volume, some effective researches in this area practically were not spent up to the end of the 60th years when Joe Granville and Larry Williams have approached to studying interrelation of the price and volume more creatively. For many years it was considered, that the price and volume should grow and fall simultaneously, and any infringement of this interrelation is an attribute of possible change of the price tendency. The Granville's concept of balance volume (IAV), - according to which all volume in day of a rise in prices is considered as accumulation, and in day of recession - as distribution, - is comprehensible, but is too simplified and consequently is unvaluable.

Point is that in very many cases the important peaks and hollows of the prices (both short-term, and intermediate term) prove to be true by IAV. However, if formation of a price extremum nevertheless is accompanied by a divergence of IAV line, this as a rule, serves as a reliable technical signal which the turn of the prices follows. Larry Williams has developed and has improved the concept of balance volume.

To define, what occured in the given day in the market - accumulation or distribution - Granville compared current close price with previous, but Williams - close price with open price.

Williams has created the cumulative indicator, adding to its cumulative value some share of day time volume of the tenders if the close price was above the open price, and deducting some share of volume if the close price was below the open price.

Accumulation/distribution indicator has appeared much more effectively the classical method of the analysis of volumetric divergences created by Granville. Then Williams has gone further, having created oscillator on the basis of an accumulation/distribution line. New oscillator allows to receive even more exact buy or sell.

In the beginning of 70th daily newspapers have ceased to publish data about the share's open price. That is why calculations under Williams's formula became impossible without daily calls to the broker. After that Chaikin created Oscillator, in which the open price in Williams's formula was replaced by the average day.

Chaikin's Oscillator is an excellent tool of the market analysis and a source of reliable buy or sell signals.

The concept of this oscillator is based on three basic positions.

The first: If the share or an index are closed above the average value for a day (which is defined as [maximum + minimum] / 2) - so this day there was an accumulation. The more close the level of share close or an index to a maximum, the more active accumulation. And on the contrary, if the share is closed below the average day price - that the distribution occured this day. The more close to a minimum, the distribution is more active.

The second position: the steady rise in prices is accompanied by growth of tenders' volume and strong volume accumulation. As the volume is some kind of the fuel feeding market growth so backlog of volume at a rise in prices testifies to lack of fuel for continuation of rise. And on the contrary, falling of the prices is usually accompanied by low volume, and comes to an end with panic liquidation of institutional investors' positions.

The third position consists that it is possible to trace volume of the money resources acting on the market and leaving it by means of Chaikin Oscillator. Comparison of volume and prices dynamics allows to reveal tops and the bases of the market - both short-term, and intermediate term.

As there are no correctly operating methods of the technical analysis, the author recommends to apply this oscillator together with other technical indicators.

There is also other way of use of Chaikin Oscillator at whom change of its direction is considered a buy or sell signal but only if it coincides with a direction of the price tendency.

So, if the share on the rise and its price above a 90-day's moving average turn of oscillator curve upwards in the field of negative values is considered as a buy signal (only if the share price above 90-day's moving average - not below it). Turn of the oscillator downwards in the field of positive values (above zero) is considered as sell signal (only if share price during this moment below a 90-day's moving average of close price).