A Complete Guide to Chaikin Money Flow (CMF) for Traders
The global market is at a fast-moving pace and can be challenging to keep track of price swings and make gains, especially for beginners with little knowledge of the right tools to use. To monitor the market, traders and investors often use a wide array of indicators to assess market sentiment, detect trends, and make strategic trading decisions. One such effective tool is the Chaikin Money Flow (CMF) indicator. Created by Marc Chaikin, CMF stands out for its ability to evaluate the flow of money into or out of security by integrating both price and volume data. This combination provides traders with essential insights into buying and selling pressure, delivering valuable signals that can guide their market actions. This guide explores the fundamentals of CMF and how it can be used to make informed trading decisions. Read Also: Key Indicators for Successful Ethereum Technical Analysis Trading Key Takeaways What is Chaikin Money Flow? Source: Pinterest The Chaikin Money Flow (CMF), created by esteemed stock analyst Marc Chaikin, is a technical indicator designed to evaluate the flow of capital into or out of a security. It helps traders identify potential trends and validate their strengths. According to ResearchGate, about 90% of traders end up losing money. To avoid becoming another statistic in the unpredictable market, it’s important to improve your understanding of trading tools to improve your chances of profitability. CMF is based on the idea that a stock’s price movement, combined with its volume, provides a clearer picture of its strength or weakness. The indicator compares closing prices to highs and lows over a given period (usually 21 days) and assigns greater importance to periods where there is heavy trading volume. By doing so, CMF attempts to show whether buying pressure (accumulation) or selling pressure (distribution) dominates the market. In essence, the premise behind CMF is that securities reaching new highs reflect strong money flow and heightened buying pressure, while securities reaching new lows signal weak money flow and dominant selling activity. Similar to other momentum indicators, traders frequently use CMF to confirm the prevailing trend or identify divergences with price action, which can signal potential trend reversals. For instance, if the price hits a new high but CMF forms a lower high, it suggests that sellers are stepping in despite the ongoing rally. This bearish divergence indicates growing downside momentum. Note that while CMF is commonly used for stock market analysis, it is also applicable to other financial markets like commodities and foreign exchange. How to Calculate Chaikin Money Flow Source: Pinterest Calculating the Chaikin Money Flow (CMF) requires several steps that include finding the Money Flow Multiplier (MFM) and Money Flow Volume (MFV). These calculations help gauge the flow of money into or out of a security, offering insights into market sentiment. Most charting and trading platforms automatically compute the CMF and allow users to customize the time period. However, understanding the formula is crucial to grasping why CMF can be an effective indicator. The calculation involves three key steps: 1. Money Flow Multiplier (MFM): This is calculated as: Money Flow Multiplier = [(Close – Low) – (High – Close)] / (High – Low) The Money Flow Multiplier ranges between -1 and 1, depending on the closing price’s position within the day’s trading range. 2. Money Flow Volume (MFV): Multiply the MFM by the trading volume of the day to find the MFV. 3. Chaikin Money Flow (CMF): Now, calculate the cumulative MFV over a specified period (typically 21 days). The formula for CMF is: CMF= {sum of MFV over N days} / {sum of Volume over N days} This calculation results in a value that fluctuates between -1 and +1, with readings above 0 indicating accumulation (buying pressure) and readings below 0 indicating distribution (selling pressure). While the main calculation remains consistent, different platforms may represent the CMF differently. Some show it as a decimal (e.g., 0.45), while others express it as a value ranging from 0 to 100 (e.g., 45). Regardless of the representation, the underlying meaning of the indicator remains the same. Chaikin Money Flow Best Settings Traders typically use a 20- or 21-period setting for calculating the Chaikin Money Flow (CMF) indicator. Some traders prefer to use a 50-period CMF to evaluate accumulation and distribution over the long term. Settings above 30: Using CMF settings higher than 30 makes the indicator less sensitive, filtering out noise and producing fewer but higher-quality signals. Settings below 20: Lower CMF settings (under 20) make the indicator more sensitive, but this can result in increased market noise. With these settings, traders should be cautious, as they may encounter more false signals due to the heightened sensitivity. Interpreting Chaikin Money Flow When interpreting the Chaikin Money Flow indicator, traders typically focus on the following signals: Conversely, if the price makes a new low but the CMF does not confirm this move, it may suggest that selling pressure is fading, hinting at a possible reversal in the trend. The Role of Volume in CMF Volume is a key component of the CMF calculation. High volume during price increases is interpreted as accumulation, which suggests stronger bullish sentiment, while high volume during price decreases is seen as distribution, indicating bearish sentiment. This focus on volume makes CMF a valuable tool in detecting whether a price trend has the necessary support to continue. For instance, if a stock is experiencing a price rally with increasing volume and the CMF is positive, it suggests that the rally is backed by strong accumulation and is likely to continue. Conversely, if the CMF turns negative during a price rally, it may signal that distribution is occurring, warning traders of a potential reversal. How to Use CMF in Trading Strategies Source: Pinterest CMF can be employed in several ways to help improve the accuracy of trading strategies: Identify Accumulation and Distribution The main function of CMF is to differentiate between periods of accumulation and distribution. A CMF reading above the zero line signals net accumulation,
Justin Sun Sells $119M in Ethereum as ETH Breaks $4K Mark
According to renowned on-chain tracker Spotonchain, Tron (TRX) founder Justin Sun has sold $119 million worth of Ethereum (ETH). The Tron founder’s recent Ethereum deposits coincided with the token surpassing $4,000. As usual, the transaction, conducted on December 8, 2024, marks a notable move in the market as ETH experiences a bullish run fueled by growing institutional interest and strong market sentiment. Justin Sun’s Ethereum Transaction Details Sun’s massive selloff involved dumping 29,920 ETH from his wallet to a major cryptocurrency exchange, HTX. The market responded with slight fluctuations, but ETH remained slightly above the $4,000 mark amid the transaction. This development comes as Ethereum continues to rally, gaining over 6.9% in the past week due to rising adoption in decentralized finance (DeFi) and renewed optimism about Ethereum 2.0 upgrades. Analysts suggest Sun’s decision to liquidate such a significant amount of ETH may indicate strategic portfolio rebalancing or anticipation of near-term market corrections. Market Reactions and Speculation The sale has raised questions among industry watchers, as large-scale liquidations by high-profile figures often influence market trends. Some speculate that Sun could be reallocating resources to support TRON-related initiatives or diversifying his holdings across other digital assets. Others suggest that the sale might reflect concerns over Ethereum’s sustainability at its current valuation. Interestingly, another group believes Sun might have opted to cash in on the surge to take profits. The profit-taking assertion seemed plausible, considering that the Tron founder purchased most of his Ethereum holdings at prices significantly below $4,000. Historical Context of Justin Sun’s Trades This is not the first time Sun’s trades have drawn attention. Known for his bold market moves, the Tron founder has previously made high-profile transactions that often lead to industry-wide speculation. While Sun has not publicly commented on this particular sale, past statements suggest his trading strategy aligns with market conditions and long-term ecosystem goals. It is worth noting that Sun splashed about $1.19 billion to purchase 392,474 ETH between February and August this year. Meanwhile, since November, the Tron founder seemed more interested in sell-offs. The Tron founder has dumped 41,630 ETH, amassing approximately $145.9 million. Broader Implications for the Market Sun’s selloff highlights ongoing shifts in the cryptocurrency landscape as investors react to volatile market conditions. Ethereum’s ability to maintain its price stability despite such a significant transaction underscores the resilience of its market fundamentals. However, analysts caution that other large-scale liquidations could test the limits of the current rally. As the cryptocurrency market continues to evolve, Sun’s move serves as a reminder of the complexities driving investor behavior and the broader implications of high-value trades. Moreover, ETH is changing hands at about $3,900, reflecting a 1.1% decline in the past 24 hours. It boasts roughly $468 billion in market capitalization, while its 24-hour trading volume reflected $29.37 billion.
How to Use On-Balance-Volume (OBV) in Crypto Trading
Everyone loves a shortcut, especially when it comes to making money. However, for cryptocurrencies, known for their wild swings, sure bets are hard to come by. Several studies suggest that 70% to 97% of traders lose money over time in crypto trading. Consequently, any advantage a trader can obtain will increase their chances of success. And that’s exactly what using the On-Balance-Volume (OBV) in crypto trading will do. OBV is a volume-based indicator that helps traders gauge the strength of a trend, anticipate potential reversals, and make more informed trading decisions. It tracks the relationship between trading volume and price movements, revealing the subtle shifts in buying and selling pressure that often precede major price swings. In this article, we’ll analyze the OBV as a technical indicator, and explore its calculation, interpretation, and practical applications in crypto trading. Read Also: Crypto Volume Analysis: What Are They? How to Use Them? Key Takeaways What is the On-Balance-Volume (OBV) Indicator All About? The On-Balance Volume (OBV) indicator in crypto trading gauges the buying and selling pressure of a cryptocurrency by assessing its trading volume relative to its price movements. Developed by Joe Granville in 1963, OBV operates under the premise that volume precedes price, suggesting that changes in trading volume often foreshadow upcoming price trends. What is OBV? OBV is a cumulative indicator that keeps a running total of volume, adding it on up days (when the closing price is higher than the previous day’s close) and subtracting it on down days (when the closing price is lower). If the closing price remains unchanged, the OBV also remains the same. This ongoing tally creates a line on a chart that traders can analyze with the price chart to understand market sentiment and potential price direction. How OBV is Calculated The calculation of OBV is relatively straightforward. Key Assumptions Behind OBV Image by pvproductions on Freepik OBV operates on a few key assumptions. 1. Volume as a Leading Indicator OBV assumes that changes in trading volume often precede price movements. A surge in volume during an uptrend suggests strong buying pressure and potential for further price increases. Conversely, declining volume during a downtrend could indicate weakening selling pressure and a possible reversal. 2. Buying and Selling Pressure The core principle of OBV is that volume reflects the balance between buying and selling pressure in the market. Increasing volume on up days signifies strong buying pressure. Contrarily, decreasing volume on down days suggests weak selling pressure. 3. Trend Confirmation and Divergence OBV can help confirm the strength of an existing trend or identify potential divergences that may signal a trend reversal. How to Interpret the OBV Indicator Image by Freepik While the calculation of OBV might seem straightforward, the true power of this indicator lies in its interpretation. Knowing how to read the OBV line relative to price action can help ascertain market sentiment and potential trend directions. Here is how; 1. Uptrends and Downtrends One of the primary uses of OBV is to confirm the strength of an existing trend. In an uptrend, where the price is making higher highs and higher lows, a rising OBV line acts as a confirmation signal. This suggests strong buying pressure is propelling the price upward, and the trend is likely to continue. Conversely, in a downtrend, where the price is making lower lows and lower highs, a falling OBV line reinforces the bearish sentiment. This indicates either persistent selling pressure or a lack of substantial buying interest, suggesting the downward trajectory might persist. For example, imagine the price of Bitcoin is steadily increasing, creating a series of higher highs and higher lows on the chart. If the OBV line is also climbing alongside the price, it validates the strength of the uptrend and signals that buyers are firmly in control. However, if the price is rising but the OBV line is flat or declining, it could indicate a potential weakness in the trend. This divergence might suggest that the upward momentum is waning, and a reversal could be on the horizon. 2. Spotting Potential Reversals through Divergence Divergences between price and OBV can be powerful signals of potential trend reversals or weakening momentum. They highlight discrepancies between price action and underlying volume. Consequently, they offer clues about shifts in market sentiment that might not be immediately apparent on the price chart alone. However, it’s important to exercise caution and confirm these signals with other indicators or chart patterns before making any trading decisions. Typically, two kinds of divergence can be observed using the OBV. Bullish Divergence This occurs when the price makes lower lows, but the OBV makes higher lows. This divergence suggests that while the price declines, buying pressure is actually increasing. The bullish divergence could indicate that the downtrend is losing steam and a reversal to the upside might be imminent. Bearish Divergence Conversely, a bearish divergence happens when the price makes higher highs, but the OBV makes lower highs. This pattern suggests that although the price is rising, the buying pressure is weakening or the selling pressure is building. The bearish divergence serves as a warning sign that the uptrend might be losing momentum and a potential reversal to the downside could be in the cards. 3. Breakouts and Confirmations OBV is useful in confirming or invalidating price breakouts from key levels or chart patterns. When the price breaks out of a resistance level or a consolidation pattern, a corresponding increase in OBV adds credence to the breakout. This surge in volume suggests strong conviction among buyers or sellers. It increases the likelihood of the breakout being genuine and the trend continuing in the breakout direction. On the other hand, if the price breaks out but the OBV remains flat or declines, it could indicate a lack of genuine buying or selling pressure. This might signal a false breakout, where the price is likely to retrace back to its previous range. For example, imagine Bitcoin has been trading within a defined range
zk-SNARKs and zk-STARKs: Key Differences You Should Know
If you’ve been around blockchain for a while, you’ve probably come across terms like zk-SNARKs and zk-STARKs. They might sound confusing at first, but these technologies are shaping how privacy works in cryptocurrencies and beyond. zk-SNARKs and zk-STARKs are part of something called zero-knowledge proofs, and they allow you to prove that something is true without revealing any extra information. But here’s where it gets interesting—these two methods work in very different ways. Did you know that Ethereum Development Conference (EDCON) tweeted a video where Vitalik Buterin, co-founder of Ethereum, predicted that zK-SNARKs are going to be as important as Blockchains in the next 10 years? That’s a bold statement, but it’s sparking a lot of discussions right now. So, what sets these two technologies apart? Let’s break it down in a way that makes sense and get to the heart of how zk-SNARKs and zk-STARKs could change the way we think about blockchain security. Keep reading—you’ll be surprised how different they really are. Key Takeaways What are Zero-Knowledge Proofs (ZKPs)? Source: LinkedIn Zero-knowledge proofs (ZKPs) are a cryptographic method that allows one party to prove the validity of a statement without revealing any information about the statement itself. This is one of the most exciting innovations in cryptography. ZKPs let one person (the “prover”) prove something to another person (the “verifier”) without showing any extra details. This might sound abstract, but it’s an essential concept that is powering advances in blockchain privacy, security, and scalability. Think of it this way: imagine you want to prove you know the password to a vault without actually telling anyone the password. With zero-knowledge proofs, you can do just that. You prove you know something important without ever giving away the secret itself. This technology is already making waves in the blockchain world because it solves a key problem—how to keep things secure while still sharing information across a decentralized network. Types of Zero-Knowledge Proofs (Interactive vs. Non-Interactive) There are two main types of zero-knowledge proofs: interactive and non-interactive. Both achieve the same goal but do it in different ways. Interactive Zero-Knowledge Proofs In an interactive ZKP, the prover and verifier engage in back-and-forth communication. The verifier challenges the prover to prove they know something without revealing it, and the prover responds accordingly. This interaction continues until the verifier is convinced. However, this process is less practical for blockchain applications because it requires real-time communication. Non-Interactive Zero-Knowledge Proofs As the name suggests, non-interactive ZKPs remove the need for back-and-forth communication. Instead, the prover submits a single proof that the verifier can check without further interaction. This type is more suited for blockchain environments, where nodes may not always be available for live communication. Technologies like zk-SNARKs and zk-STARKs are examples of non-interactive ZKPs. Basic Principles of Zero-Knowledge Proofs Zero-knowledge proofs operate based on three core principles: These principles ensure that ZKPs maintain integrity and privacy, which is why they’ve become a key part of cryptographic solutions for decentralized systems. Key Components of a Zero-Knowledge Proof Every zero-knowledge proof involves two primary parties: the prover and the verifier. Let’s break down their roles. Prover The prover is the party that knows the secret or the statement being proven. In blockchain applications, the prover might be someone who wants to prove that they have a certain balance or control over a set of assets without revealing the actual amounts or details. The prover generates a cryptographic proof that demonstrates the validity of their claim. Verifier The verifier is the party that checks the proof. They do not know the secret but need to be convinced that the prover’s statement is true. The verifier runs some mathematical checks on the proof submitted by the prover and, if everything checks out, they can confirm that the statement is true. Importantly, the verifier learns nothing about the secret itself—only that the prover has demonstrated knowledge of it. Benefits of Zero-Knowledge Proofs Zero-knowledge proofs bring several advantages to the table, making them highly desirable in blockchain and other secure systems. Let’s explore the top three benefits: Security ZKPs enhance security by allowing proofs to be verified without exposing any sensitive information. In blockchain networks, this means users can prove they own or control certain assets without disclosing private details, reducing the risk of data breaches and other attacks. Since no actual data is transmitted, ZKPs are incredibly resilient to hackers and eavesdroppers. Privacy Privacy is one of the main reasons ZKPs have gained so much traction in the blockchain space. Traditional verification methods often require users to share large amounts of personal or financial information. With ZKPs, users can prove their claims (e.g., ownership of funds, completion of a transaction) without revealing any personal data, making ZKPs a powerful tool for privacy-centric applications. For example, a person could prove they meet certain requirements (like being over 18 or having sufficient funds) without revealing their age or bank balance. This is a game-changer for privacy in blockchain, where maintaining confidentiality is critical. Scalability ZKPs also contribute to scalability, especially in blockchain networks. Since proofs can be verified without revealing all the underlying information, they can reduce the amount of data that needs to be stored and processed. This helps lighten the load on blockchains, making them more scalable and efficient. zk-SNARKs and zk-STARKs, two of the most widely discussed forms of zero-knowledge proofs, are specifically designed to enhance scalability in blockchain systems by making transactions lighter and easier to verify. This scalability improvement is one reason why people like Vitalik Buterin see zk-STARKs as a promising future technology for blockchain privacy and efficiency. ZK-SNARKs: A Detailed Overview Source: IQ.wiki Zero-knowledge Succinct Non-interactive Arguments of Knowledge, better known as ZK-SNARKs, is a breakthrough technology in cryptography that has revolutionized the way privacy is handled in decentralized systems like blockchains. They allow for efficient verification of statements without revealing any additional information about the statement itself. What Are ZK-SNARKs? ZK-SNARKs are cryptographic proofs that enable one party (the prover) to demonstrate
