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Trading and Investment Terminology

Chande Momentum Oscillator

The Chande Momentum Oscillator (CMO) developed by Tushar Chande attempts to capture the momentum of the instrument. The indicator oscillates between -100 and 100 with an overbought level of 50 and an oversold level of -50.

Formula

CMO = ((PosSum - NegSum) / (PosSum + NegSum)) * 100

Where:

  • PosSum = Sum of (Closecurrent- ClosePrevious) where (Closecurrent- ClosePrevious) is greater than zero
  • NegSum = Absolute value of the sum of (Closecurrent- ClosePrevious) where (Close current- Close Previous) is less than zero

 

How this indicator works

  • CMO indicates overbought conditions when it reaches 50 levels and oversold conditions when it reaches −50. You can also look for signals based on the CMO crossing above and below a signal line composed of a 9-period moving average of the 20 periods CMO.
  • CMO measures the trend of strength. The higher the absolute value of the CMO, the stronger the trend. Lower absolute values of the CMO indicate sideways trading ranges.
  • CMO often forms chart patterns that may not show on the underlying price chart, such as double tops and bottoms and trend lines. Also, look for support or resistance on the CMO.
  • If underlying prices make a new high or low that is not confirmed by the CMO, the divergence can signal a price reversal.

 

 

 

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