# Chaikin oscillator for binary options 2020 - strengths & weaknesses

Chaikin oscillator for binary options 2020: how is it interpreted? Information about the indicator. Trade binary options with know-how now.

Another interesting indicator that we would like to introduce in our series is the Chaikin oscillator. Named after its inventor, Marc Chaikin, the oscillator measures the momentum of the A / D line. To understand the indicator, you should therefore be familiar with the A / D line. This, in turn, should not be confused with the Advance / Decline line, which is also abbreviated as A / D-Line.

The Accumulation / Distribution Line is an indicator that compares the price and trading volume with each other, We have already presented this indicator in the context of volume indicators such as the on-balance volume (OBV). The A / D-Line is a further development of the OBV indicator. The calculation is not very complex.

• First, it is identified whether the closing price is above or below the daily range. This creates different weightings. Chaikin calls this CLV (Close Location Value).
• In the second step, the A / D line is calculated by multiplying the individual CLVs by the volume.
• Then the value of the previous day is calculated

The weights ensure that strong movements under a high volume are more important than movements under a weak volume.

The upper 4-hour chart for gold shows one A / D line rises as price fluctuates sideways. Since a downward trend had previously been established, one could assume on a short-term basis that the sideways phase is a continuation formation. The break out of the range is strongly confirmed by the A / D line, so a reversal was likely.

So far, so good. The Chaikin oscillator should now also measure the momentum of the A / D line. This is achieved by calculating two moving averages on the A / D line and subtracting their values ​​from each other. The calculation thus corresponds exactly to that of the MACD indicator on the course. The standard period settings for the moving averages are 3 and 10. If the period settings are changed, make sure that the first moving average is always shorter than the second.

## The interpretation of the Chaikin oscillator

The Chaikin oscillator is not intended to directly identify the strength or weakness in the course, but goes one step further and measures the strength and weakness in the trend of the A / D line. This could result in a clear advance to the actual course. If you look at the chart below, this fact becomes clear.

The Chaikin oscillator has already shown the emerging strength of the A / D-Line beforehand and thus indicated a trend reversal in the price sooner than the A / D-Line Even the zero line, which is considered the signal line, was exceeded long before the breakout of the range.

The general interpretations of the indicator are as follows:

1. Does the indicator show one Divergence is the beginning of a trend reversal.
2. If the indicator confirms the course of the price, the trend continues.
3. If the indicator crosses the zero line, it is a bullish signal.
4. If the indicator falls below the zero line, it is a bearish signal.

There are basically three ways in which signals can be identified with the Chaikin indicator. On the one hand about divergences, furthermore about confirmations as well as based on the crossing of the zero line. In addition, moving averages can be placed over the indicator.

## Tip: Beware of incorrect interpretation

The following example shows that the extreme advance of the indicator is not always advantageous, We can clearly see a downward trend in the EUR / USD 4-hour chart. As above, the Chaikin oscillator shows a turnaround early, even too early for our tastes, because if you had got in so early, you might have suffered a loss because the turnaround occurred after a dynamic sell-off.

## Conclusion - weaknesses and strengths of the indicator

The example above clearly shows the weakness of the Chaikin oscillator. It is optimized in certain situations based on its calculation. In these situations, the A / D line is a better choice for identifying signals. On the other hand, the lead of the indicator can be interpreted as a clear strength in other situations.

We will therefore present how to build a trading strategy with the Chaikin oscillator in the next post. After an in-depth analysis, it can be determined in which situations the indicator is best suited for use.

With the broker OptionFair, both gold and the currency pair EUR / USD can be used either using the binary options or Forex are traded.