Indicators

Chande Momentum Oscillator

Overview
Tusher S Chande

The CMO invented by Tushar Chande is similar to the Relative Strength Index (RSI) momentum oscillator. Unlike the RSI, calculations are based on data that has not been smoothed meaning extreme short-term movements are not hidden, so the indicator reaches overbought and oversold extremes more frequently. The scale for the CMO is bounded between +100 and -100 with the zero level being the equilibrium point between periods with positive momentum (>0) and periods with negative momentum (<0).

Calculation

N

CMO = {(Sum of all positive changes in price – Absolute sum of all negative changes in price)/(Sum of all positive changes in price + Absolute sum off all negative changes in price)}*100, over n periods.

Trading with CMO
 

The CMO oscillates between 100 and -100, a currency is considered overbought when the CMO is above 50 and oversold when the CMO is below -50. Traders are advised to exercise caution entering new long positions when the CMO is over 50 and entering fresh short positions when the CMO is under -50. A cross over to above the centreline (0) can serve as a confirmation of a bullish signal, whilst crossovers to below the centreline can serve as confirmation of bearish signals.

Trading signals