CMO - Chande Momentum Oscillator
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Technical Analysis -
Indicators of Technical Analysis
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Chande Momentum Oscillator (CMO) was created by Tushar S. Chande. First time it was described in his book "The new Technical Trader" (Tushar S. Chande, Stanley Kroll). This indicator is similar to RSI and others momentum oscillators. Alike the RSI, its aim is to detect the overbought and oversold conditions.
The indicator values move between +100 and -100. The calculation is based on original price values, so you can watch the short-time price swings as well.
Construction of the indicator:
1. If today's Close (Close n) is higher than yesterday's (Close n-1), then:
CMO1 = Close n – Close n-1
CMO2 = 0
2. If today's Close is lower then yesterday's, then:
CMO1 = 0
CMO2 = (Close n – Close n-1) * (-1)
3. Add the CMO1 and CMO2 for a given period of time
4. CMO = 100 x ((CMO1 – CMO2) / (CMO1 + CMO2))
How to use the CMO indicator:
- If the CMO value is above 50, the asset is considered to be overbought. If its value is under - 50, it is considered to be oversold. The values 50/- 50 are similar to RSI's 70/30 signal lines.
- We can also follow the crossings of CMO and its moving average (its signal line, in such case). Should the CMO crossed its MA upwards, it would be a signal to Buy. Should it crossed downwards, a signal to Sell would be given so.
- Short-time and Long-time CMO crossings.
- CMO, alike the VHF indicator, shows how much is the asset trending. The higher value of CMO (Absolut value), the stronger trend is present. The lower its value is, the higher probability that the market is just Choppy. If we use trend-following trading systems, it is appropriate to enter the trades by high CMO values, exit them by low CMO values.
- Similar to other momentum oscillators, it is possible to use the CMO divergences with its price graph (but this option is not directly mentioned by Tushar S. Chande in his book).
If you are interested in a deeper study of this technical indicator and prefer ready to serve solutions, this may be of interest to you. There you can find all the available indicators in Excel file for download.
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