Chande Momentum Oscillator

The Chande Momentum Oscillator indicator is a momentum-based technical analysis tool used to identify overbought or oversold conditions and potential trend strength.

Usage

The Chande Momentum Oscillator (CMO) is primarily used to identify market extremes. Traders typically look for readings above +50 to indicate overbought conditions and readings below -50 to indicate oversold conditions. Unlike many other oscillators, the CMO uses data for both up and down days in the numerator, which can provide more sensitivity to momentum shifts.

Key usage scenarios include:

• Overbought/Oversold Identification: When the CMO line crosses the predefined thresholds (50 and -50), the background or line color changes to signal potential exhaustion in the current trend.
• Divergence: Looking for differences between price action and CMO movement to identify potential reversals.
• Trend Strength: Higher absolute values of the CMO indicate stronger directional momentum.

Details

Developed by Tushar S. Chande and Stanley Kroll and introduced in their 1994 book "The New Technical Trader," the CMO is a modified version of the Relative Strength Index (RSI). While the RSI only considers the sum of upward price changes in its denominator, the CMO includes both upward and downward price changes in the denominator. This allows the oscillator to fluctuate between -100 and +100, providing a clear zero-line crossover signal for momentum direction.

Settings

• Length: The lookback period used for the summation of price changes (default is 9).
• Overbought Level: The upper threshold used to signal overbought conditions (default is 50).
• Oversold Level: The lower threshold used to signal oversold conditions (default is -50).
• Highlight Overbought/Oversold Breakouts?: A toggle to enable visual background filling when the oscillator exceeds the thresholds.
• Source: The price data used for the calculation, typically the closing price.

FAQ

How do I interpret the CMO colors?

In this script, the CMO line turns green when it rises above the overbought level and red when it falls below the oversold level. If the breakout highlighting is enabled, the background area between the threshold and the maximum/minimum levels will also be shaded.

How does CMO differ from RSI?

The CMO uses price changes in both the numerator and the denominator of its formula, whereas the RSI only uses them in the denominator. This makes the CMO more directly comparable to price momentum and allows for a symmetrical scale around zero.

How can I access the Chande Momentum Oscillator?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.