The Chaikin Oscillator was originally developed to compare volume and price levels for an asset. It was developed by Marc chaikin. The Chaikin Oscillator is usually used to indicate when an asset is overbought or oversold and thus, to indicate upcoming reversals.

A trader first needs to generate an Accumulation/Distribution Line (A/D Line) for an asset in order to calculate a Chaikin Oscillator chart. The A/D Line is derived from an index called the close location value, or CLV, which compares high, low and close prices. The CLV will be positive if the close price is above the midpoint of the high-low range, the CLV will be negative if the close price is below the midpoint. A cumulative total of the CLV times the volume of the asset generates the A/D Line, which is high when closing prices and volume are high and low when closing prices and volume are low, indicating pressure in either direction on the asset. The Chaikin Oscillator is thus simply a ten-period moving average of asset price less a three-day moving average of the newly-generated A/D Line’s value.

Whenever, the Oscillator is at a high value, the A/D Line is at a low value relative to the asset price, indicating that selling pressure is increasing on the asset and that a price reversal is imminent. When the Oscillator, conversely, is at a low value, buying pressure is increasing and an increase in price is equally imminent. Thus investors can use the Oscillator to help determine the appropriate time to sell or buy an asset in order to take advantage of  the imminent reversal.