Chande Momentum Oscillator | Indicator Series

A momentum oscillator measures the amount and speed a stock or security’s price has changed over a certain period of time.  Usually, trading strategies are not based on momentum oscillators alone.  They are usually used to confirm what other technical analysis tools are showing.

The Chande Momentum Oscillator (CMO) was created by an Australian trader by the name of Tushar Chande.

The Chande Momentum Oscillator focuses on overbought or oversold securities or stock.   In other words, it can point out that a stock is priced higher than its fair trading value (overbought) or priced well below its fair trading value (oversold).  

The CMO is reminiscent of The Relative Strength Index (RSI), another momentum indicator, but for a slight difference in calculation.  This slight difference in the formula creates a different graph in which the momentum indicator oscillates.  Check out tradingview’s advanced charting tools

Chande Momentum Oscillator (CMO)

CMO = 100 x ((Up – Down) / (Up + Down))

Up is the positive changes in price over a specified period and Down is the negative changes over a specified period.  In the CMO graph, the indicator oscillates between -100 and +100.

If the CMO line crosses over +50, this shows the price of the stock is in an overbought condition and there is a potential that the price will correct.  If the line crosses below -50, this stock or security is in an oversold condition and there is an expectation that there will be a reversal in price.  

When the CMO line crosses over and above the zero line, this indicates a buying momentum as when the line crosses over and below the zero line, this indicates a selling momentum. 

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Relative Strength Index (RSI)

RSI = 100 – [100 / (1 + (Up / Down))]

In the RSI, the momentum indicator oscillates between 0 and +100.  If the RSI line crosses over 70, this indicates an overbought condition.  Conversely, if the line crosses below 30, this indicates an oversold condition.

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