The CMF indicator determines the direction of capital flow by analyzing the relative position of the price relative to the daily fluctuation range and combining it with the trading volume. When the closing price is close to the highest price of the day and the trading volume is enlarged, the money flow multiplier MFM is positive, indicating that there is buying pressure in the market and capital is flowing in; when the closing price is close to the lowest price of the day and the trading volume is enlarged, the money flow multiplier MFM is negative, indicating that there is selling pressure in the market and capital is flowing out. CMF gives the strength of capital inflow/outflow by accumulating the capital flow over a period of time and dividing it by the sum of the corresponding trading volumes. A positive CMF indicates that capital inflow is dominant, which may indicate a price increase; a negative CMF indicates that capital outflow is dominant, which may indicate a price decrease. A CMF with a large absolute value indicates that the intensity of capital inflow or outflow is high, indicating that the market trend may be more obvious.

The effectiveness of this indicator depends on the accurate interpretation of trading volume and needs to be used in conjunction with other technical analysis tools.