# Chaikin Oscillator Trading Strategy: Statistics, Facts, And Historical Backtests!

**The Chaikin Oscillator Indicator** was developed by Marc Chaikin in the 1980s. It’s not widely used nor well-known, perhaps for good reasons: we didn’t manage to find any significant profitable ** Chaikin Oscillator Trading Strategy** in any of the quantified tests we did.

**In this article, we briefly explain what the indicator is, how it’s calculated, and if it can serve any purpose in your trading. Unfortunately, we found the indicator not useful in the ten Chaikin strategies we tested.**

## Chaikin Oscillator Trading Strategy: Understanding the Indicator

The Chaikin Oscillator Indicator measures the accumulation or distribution and is not to be confused with the Chaikin Money Flow Indicator. The aim of the indicator is to measure the momentum of the stock’s moves, and the indicator oscillates around zero (up and down). Developed by Marc Chaikin, this oscillator is a key tool for traders to understand market momentum.

The indicator is calculated in four steps and is somewhat “complicated”:

- Money flow multiplier: ( (Close-Low)-(High-Close) ) / (High-Low), where the ‘closing price’ is crucial in determining the multiplier by comparing it to the high and low prices of the trading session.
- Money flow volume: Money flow multiplier * volume
- Accumulation/distribution line (ADL): previous ADL + current period’s money flow volume
- Chaikin oscillator: (x-day MA of ADL) – (x-day MA of ADL)

To calculate the Chaikin Oscillator, one must first determine the money flow multiplier using the closing price, then calculate the money flow volume, update the Accumulation/Distribution Line (ADL), and finally subtract the longer moving average of the ADL from the shorter one, reflecting the market’s momentum.

In Amibroker the code is like this: MFM = ( (Close – Low) – (High – Close) ) / (High – Low) ; MFV = MFM*Volume; ADL = MFV + Ref(MFV,-1); CO = EMA(ADL,3) – EMA(ADL,10);

## How the Chaikin Oscillator measures market momentum?

The formula above indicates the Chaikin Oscillator oscillates around zero. The short EMA shows the short-term momentum, while the long EMA shows a longer-term momentum. Importantly, the Chaikin Oscillator generates signals by measuring the momentum of the Accumulation Distribution Line, particularly through bullish or bearish divergences and crosses above or below the zero line. This zero line is crucial as it helps traders anticipate market movements by indicating buying pressure when above and selling pressure when below. Below is an example of the indicator for silver miners (SIL) using the “standard” moving average values of 3 and 10:

Does the Chaikin Oscillator have any predictive value? Below we do some quantified tests:

## Chaikin Oscillator trading strategies when itChaikin Oscillator Trading Strategy: Statistics, Facts, And Historical Backtests!

**The Chaikin Oscillator Indicator** was developed by Marc Chaikin in the 1980s. It’s not widely used nor well-known, perhaps for good reasons: we didn’t manage to find any significant profitable ** Chaikin Oscillator Trading Strategy** in any of the quantified tests we did.

**In this article, we briefly explain what the indicator is, how it’s calculated, and if it can serve any purpose in your trading. Unfortunately, we found the indicator not useful in the ten Chaikin strategies we tested.**

## Chaikin Oscillator Trading Strategy: Understanding the Indicator

The Chaikin Oscillator Indicator measures the accumulation or distribution and is not to be confused with the Chaikin Money Flow Indicator. The aim of the indicator is to measure the momentum of the stock’s moves, and the indicator oscillates around zero (up and down). Developed by Marc Chaikin, this oscillator is a key tool for traders to understand market momentum.

The indicator is calculated in four steps and is somewhat “complicated”:

- Money flow multiplier: ( (Close-Low)-(High-Close) ) / (High-Low), where the ‘closing price’ is crucial in determining the multiplier by comparing it to the high and low prices of the trading session.
- Money flow volume: Money flow multiplier * volume
- Accumulation/distribution line (ADL): previous ADL + current period’s money flow volume
- Chaikin oscillator: (x-day MA of ADL) – (x-day MA of ADL)

To calculate the Chaikin Oscillator, one must first determine the money flow multiplier using the closing price, then calculate the money flow volume, update the Accumulation/Distribution Line (ADL), and finally subtract the longer moving average of the ADL from the shorter one, reflecting the market’s momentum.

In Amibroker the code is like this: MFM = ( (Close – Low) – (High – Close) ) / (High – Low) ; MFV = MFM*Volume; ADL = MFV + Ref(MFV,-1); CO = EMA(ADL,3) – EMA(ADL,10);

## How the Chaikin Oscillator measures market momentum?

The formula above indicates the Chaikin Oscillator oscillates around zero. The short EMA shows the short-term momentum, while the long EMA shows a longer-term momentum. Importantly, the Chaikin Oscillator generates signals by measuring the momentum of the Accumulation Distribution Line, particularly through bullish or bearish divergences and crosses above or below the zero line. This zero line is crucial as it helps traders anticipate market movements by indicating buying pressure when above and selling pressure when below. Below is an example of the indicator for silver miners (SIL) using the “standard” moving average values of 3 and 10:

Does the Chaikin Oscillator have any predictive value? Below we do some quantified tests:

## Chaikin Oscillator trading strategies when it crosses the averages:

The first Chaikin trading strategy we tested was this:

Buy when the Chaikin oscillator indicator crosses above zero, and sell when the indicator crosses under zero.

On the S&P 500, an optimized test shows that the best values are ten and 20 days. However, the CAGR over the last twenty years is an abysmal 2.4%.

What happens if we flip the criteria?

Buy when the Chaikin oscillator indicator crosses below zero, and sell when the indicator crosses above zero:

Because the S&P 500 is highly mean-reverting, this improves the result. We got the best result by using a short-term average of around 10 days and a long-term average of about 50 days. Using those settings, we got this equity curve:

To effectively use the Chaikin Oscillator, traders should monitor for bearish divergence, which signals a potential reversal when the price makes a higher high while the oscillator fails to do so, indicating reduced buying pressure. Conversely, bullish divergence occurs when the price hits a new low but the oscillator forms a higher low, suggesting a possible upward trend reversal. Both scenarios require confirmation, such as the oscillator crossing into negative or positive territory, respectively, to validate these signals.

The number of trades is 287, the average per trade is 0.54, the profit factor is 1.76, and the max drawdown is 37%.

## When the Chaikin oscillator indicator is overbought and oversold:

The Chaikin Oscillator, a momentum indicator, plays a crucial role in measuring the rate of momentum change, thereby highlighting the strength and speed of market waves. It is particularly insightful for identifying overbought and oversold conditions by turbo-charging the Accumulation Distribution Line with its momentum measurement capabilities. What happens when the Chaikin oscillator indicator has risen during a short period of time? Let’s make a Chaikin strategy based on high RSI readings:

We use the RSI, but not on the price of the ETF, but on the Chaikin Oscillator in the code above. The number of days for the moving average is 3 and 10 days. The buy criterium is when the indicator has a reading below 5 for the two-day RSI, and we sell when the close is higher than yesterday’s high.

The result is 216 trades with an average of 0.3% per trade. The profit factor is 1.6 and the max drawdown is 18% (on the S&P 500).

## Combining the Chaikin oscillator indicator and the RSI:

Let’s test a third Chaikin trading strategy:

Chaikin oscillator vs RSI: The two-day RSI of the stock must be below 20, but at the same time, the Chaikin Oscillator must be above zero. We sell when the close is higher than yesterday’s high. The equity curve looks like this on the S&P 500:

There are 216 trades with an average of 0.3% per trade, the profit factor is 1.6, and the max drawdown is 17%.

## Ending remarks about the Chaikin indicator

We didn’t find much value in any of the Chaikin Oscillator trading strategies we tested, but that doesn’t mean it’s useless. It might work by using some other criteria we are not aware of. Importantly, the Chaikin Oscillator can serve as a tool to gauge buying or selling pressure in the market, with positive values indicating accumulation and negative values suggesting distribution.

We have published similar tests of other indicators. Please check out our landing page for Trading Strategies:

## FAQ:

How is the Chaikin Oscillator Calculated?

The Chaikin Oscillator involves a four-step calculation, including the money flow multiplier, money flow volume, accumulation/distribution line (ADL), and the Chaikin oscillator itself.

- Does the Chaikin Oscillator have Predictive Value?

Quantified tests were conducted on various Chaikin trading strategies. However, the results indicate that the oscillator may not have significant predictive value in the tested strategies.

- What is the Performance of a Buy-Sell Strategy Based on the Chaikin Oscillator Crossing Averages?

An optimized test on the S&P 500 with a buy-sell strategy based on the oscillator crossing averages showed a CAGR of 2.4% over the last twenty years.

- How does the Chaikin Oscillator relate to the moving average convergence divergence (MACD)?

The Chaikin Oscillator incorporates the concept of moving average convergence divergence (MACD) by calculating the difference between two exponential moving averages (EMAs) of the accumulation/distribution line (ADL). This methodology is similar to how MACD measures the momentum and direction of a trend by highlighting the convergence and divergence of moving averages. Specifically, the Chaikin Oscillator’s use of EMAs in its calculation helps in identifying the market’s momentum, potential trend reversals, and the accumulation/distribution of the MACD, offering insights into the underlying strength or weakness of a stock’s price movement. crosses the averages:

The first Chaikin trading strategy we tested was this:

Buy when the Chaikin oscillator indicator crosses above zero, and sell when the indicator crosses under zero.

On the S&P 500, an optimized test shows that the best values are ten and 20 days. However, the CAGR over the last twenty years is an abysmal 2.4%.

What happens if we flip the criteria?

Buy when the Chaikin oscillator indicator crosses below zero, and sell when the indicator crosses above zero:

Because the S&P 500 is highly mean-reverting, this improves the result. We got the best result by using a short-term average of around 10 days and a long-term average of about 50 days. Using those settings, we got this equity curve:

To effectively use the Chaikin Oscillator, traders should monitor for bearish divergence, which signals a potential reversal when the price makes a higher high while the oscillator fails to do so, indicating reduced buying pressure. Conversely, bullish divergence occurs when the price hits a new low but the oscillator forms a higher low, suggesting a possible upward trend reversal. Both scenarios require confirmation, such as the oscillator crossing into negative or positive territory, respectively, to validate these signals.

The number of trades is 287, the average per trade is 0.54, the profit factor is 1.76, and the max drawdown is 37%.

## When the Chaikin oscillator indicator is overbought and oversold:

The Chaikin Oscillator, a momentum indicator, plays a crucial role in measuring the rate of momentum change, thereby highlighting the strength and speed of market waves. It is particularly insightful for identifying overbought and oversold conditions by turbo-charging the Accumulation Distribution Line with its momentum measurement capabilities. What happens when the Chaikin oscillator indicator has risen during a short period of time? Let’s make a Chaikin strategy based on high RSI readings:

We use the RSI, but not on the price of the ETF, but on the Chaikin Oscillator in the code above. The number of days for the moving average is 3 and 10 days. The buy criterium is when the indicator has a reading below 5 for the two-day RSI, and we sell when the close is higher than yesterday’s high.

The result is 216 trades with an average of 0.3% per trade. The profit factor is 1.6 and the max drawdown is 18% (on the S&P 500).

## Combining the Chaikin oscillator indicator and the RSI:

Let’s test a third Chaikin trading strategy:

Chaikin oscillator vs RSI: The two-day RSI of the stock must be below 20, but at the same time, the Chaikin Oscillator must be above zero. We sell when the close is higher than yesterday’s high. The equity curve looks like this on the S&P 500:

There are 216 trades with an average of 0.3% per trade, the profit factor is 1.6, and the max drawdown is 17%.

## Ending remarks about the Chaikin indicator

We didn’t find much value in any of the Chaikin Oscillator trading strategies we tested, but that doesn’t mean it’s useless. It might work by using some other criteria we are not aware of. Importantly, the Chaikin Oscillator can serve as a tool to gauge buying or selling pressure in the market, with positive values indicating accumulation and negative values suggesting distribution.

We have published similar tests of other indicators. Please check out our landing page for Trading Strategies:

## FAQ:

How is the Chaikin Oscillator Calculated?

The Chaikin Oscillator involves a four-step calculation, including the money flow multiplier, money flow volume, accumulation/distribution line (ADL), and the Chaikin oscillator itself.

- Does the Chaikin Oscillator have Predictive Value?

Quantified tests were conducted on various Chaikin trading strategies. However, the results indicate that the oscillator may not have significant predictive value in the tested strategies.

- What is the Performance of a Buy-Sell Strategy Based on the Chaikin Oscillator Crossing Averages?

An optimized test on the S&P 500 with a buy-sell strategy based on the oscillator crossing averages showed a CAGR of 2.4% over the last twenty years.

- How does the Chaikin Oscillator relate to the moving average convergence divergence (MACD)?

The Chaikin Oscillator incorporates the concept of moving average convergence divergence (MACD) by calculating the difference between two exponential moving averages (EMAs) of the accumulation/distribution line (ADL). This methodology is similar to how MACD measures the momentum and direction of a trend by highlighting the convergence and divergence of moving averages. Specifically, the Chaikin Oscillator’s use of EMAs in its calculation helps in identifying the market’s momentum, potential trend reversals, and the accumulation/distribution of the MACD, offering insights into the underlying strength or weakness of a stock’s price movement.