The Chande Momentum Oscillator looks to capture price momentum strength and weakness
by using up and down days in its calculation. The CMO indicator is created by calculating
the difference between the sum of all recent gains and the sum of all recent losses
and then dividing the result by the sum of all price movement over given time period.
The result is banded indicator fluctuates between +100 and -100. The Chande Momentum
Oscillator uses no smoothing techniques to reduce or hide any short-term volatility
in price movements.
The Chande Momentum Oscillator (CMO) can be used to identify overbought conditions
as the indicator value crosses above +50. Oversold conditions are identified when
the indicator values crosses below -50.
The CMO can also be used confirm in trend confirmation. Trend direction can be confirmed
when indicator values cross above or below the centre line. Bullish moves are confirmed
when the indicator line crosses above the centre line from below. Bearish moves
are confirmed when the indicator line crosses below the centre line from above.
The Chande Momentum Oscillator is a versatile momentum indicator that can be used
by traders in a number of ways. The most common way to use the CMO indicator to
identify overbought and oversold market conditions. By identifying extreme price
conditions traders can reduce the probability from buying at or near term market
tops and selling at or near term market lows. The Chande Momentum Oscillator can
also help traders’ time entries and to trade in the direction of the trend
by observing the indicator line behaviour around the middle line. As with all technical
indicators the Chande Momentum Oscillator should not be used in isolation but used
a one tool that is part of a larger comprehensive analysis.