CMO (Chande momentum oscillator)
Last updated
Last updated
Chande momentum oscillator (CMO) is a modification of the Momentum indicator, the inventor of which is the trader Tushar Chande, who is also known as a fan of using complex non-standard formulas in technical analysis. CMO, unlike the classic Momentum, is less widespread and is not used by traders as often in practice. It appeared in 1994 and was first described in the book "The New Technical Trader".
The idea of the indicator is as follows – price movement is considered for a given number of periods. For two adjacent candles, the difference between the current and previous closing prices is taken. If the difference is positive (price rises), it is added to the final positive change; if the difference is negative (price falls), it is added to the final negative change. The value of the indicator itself is calculated as a fraction multiplied by 100%, in the numerator of which is the difference between the final positive and final negative changes, and in the denominator their sum.
The CMO amplitude is limited to -100 and +100. The higher the oscillator rises, the more the asset is "overheated" and the higher the probability of a price rollback downward. Conversely, when the indicator drops too low, it means that the asset is undervalued and worth considering buying opportunities. When the zero line is crossed from bottom to top, a buy signal appears; when crossing from top to bottom, a sell signal appears. In this case, it is recommended to take into account only those intersections, before which the indicator line has moved from zero by at least 20-25 units since signals are often false with a small oscillation amplitude.
Periods of MA for envelopes, 8 by default;
Sources prices for MA, available values: Close, Open, High, Low, Typical, Medium, Weighted.
This indicator looks as follows on the chart:
