Chande Momentum Oscillator (CMO)

Name Type Prerequisite Use Cases
Chande Momentum Oscillator (CMO) Momentum OHLC Data Capturing momentum changes without the smoothing lag of RSI.

Definition

The Chande Momentum Oscillator (CMO) was developed by Tushar Chande. It is a technical momentum indicator that attempts to capture the momentum of a security. Unlike other momentum oscillators like RSI, the CMO uses data from both up days and down days in the numerator. The values range from -100 to +100.

Mathematical Equation

Over \(N\) periods:

  • \(S_u\): Sum of the difference between the current close and previous close on up days.

  • \(S_d\): Sum of the absolute difference between the current close and previous close on down days.

\[ CMO = \frac{S_u - S_d}{S_u + S_d} \times 100 \]

Special cases

  • Maximum possible value: 100
  • Minimum possible value: -100
  • Behavior: Oscillates between -100 and +100 to identify overbought/oversold conditions.

Visualization

CMO

Trading Significance

  1. Overbought/Oversold: Traditionally, levels above +50 are considered overbought, and levels below -50 are considered oversold.

  2. Trend Strength: Unlike RSI, CMO measures trend strength directly. High absolute values indicate a strong trend.

  3. Divergence: Divergence between the price and the CMO can signal potential reversals.

  4. Crossovers: A moving average of the CMO can be used as a signal line for crossovers.