Chande Momentum Oscillator

The Chande Momentum Oscillator (or CMO) was developed by Tushar Chande to detect what he calls "pure momentum".

Although standalone, the Chande Momentum Oscillator is comparable to other indicators such as the Relative Strength Index, the Stochastic or the Price Rate Of Change.

It is closer to the RSI but differs in several ways:

• In the numerator, it uses data from up days and down days, thus measuring momentum.
• The calculations use non-smoothed data, which prevents important short-term variations from being obscured.
• The CMO ranges from +100 to -100, thus allowing better visibility of momentum changes relative to the zero level.

Calculation Method

CMO = 100 * (H - L) / (H + L)

where:

• H: the sum of closing price variations over the period between the day in question and the previous day, when this price variation is positive
• L: the sum of closing price variations over the period between the day in question and the previous day, when this price variation is negative

Example

Interpretation

The Chande Momentum Oscillator can be used to detect different situations:

1. Overbought and oversold
   The first way to interpret this indicator is to look at peaks and troughs. In general, Chande defines an overbought level above +50 and an oversold level below -50.
   At +50, the momentum of up days is three times stronger than that of down days (and conversely at -50, the momentum of down days is three times stronger than that of up days).
   These levels are comparable to the 70/30 levels of the Relative Strength Index.
2. Supports and resistances
   The Chande Momentum Oscillator (like the Vertical Horizontal Filter indicator) can be used to assess trend strength. The higher the value, the stronger the trend. Low values correspond to prices moving in a channel.
3. Divergence
   As with other indicators, divergence between the CMO and the price can indicate a reversal signal (to be confirmed by another indicator).