Chande Momentum Oscillator (CMO)

The Chande Momentum Oscillator (CMO) is a technical analysis tool developed by Tushar Chande. It measures the momentum of price movements and helps traders identify overbought and oversold conditions. Unlike other oscillators, the CMO considers both upward and downward movements equally, offering a balanced view of market momentum.

📘 What is It?

The CMO is similar to popular oscillators like RSI (Relative Strength Index) but is calculated differently. It focuses on the sum of recent gains and losses over a set period, giving a clearer picture of market strength. The CMO fluctuates between +100 and -100, where higher values indicate stronger upward momentum and lower values show stronger downward momentum.

⚙️ How It Works

The calculation of CMO involves:

• Summing up all recent gains

• Summing up all recent losses

• Comparing the difference to the total movement over a specific period

The formula is: CMO = [(Sum of Gains - Sum of Losses) / (Sum of Gains + Sum of Losses)] × 100

This design makes the CMO particularly responsive to sudden price changes, allowing traders to spot shifts in momentum early.

📈 How to Read It

• Above +50: Strong bullish momentum.

• Below -50: Strong bearish momentum.

• Near 0: A balanced market with no clear trend.

• Over +70: Potentially overbought — price could reverse or pull back.

• Below -70: Potentially oversold — price could bounce upward.

As with other oscillators, extreme readings are not a guarantee of a reversal but are a signal to watch closely.

🧱 Best Settings

• Default Period: 14

• Traders can adjust the period based on their strategy.

  • Shorter periods (7–10) = more sensitivity, quicker signals.

  • Longer periods (20–30) = smoother signals, less noise.

  

Adjust depending on whether you prefer faster trading (scalping/day trading) or slower, more stable setups (swing trading).

📊 How to Use It in a Strategy

• Trend Confirmation: Use the CMO to confirm the strength of a trend. If the price is rising and the CMO is above +50, the trend is strong.

• Overbought/Oversold Reversals: Look for extreme readings (+70 or -70) to anticipate potential pullbacks.

• Divergences:

  • Bullish Divergence: Price makes a lower low, but CMO makes a higher low → potential reversal upward.

  • Bearish Divergence: Price makes a higher high, but CMO makes a lower high → potential reversal downward.

⚠️ Common Mistakes

• Relying Solely on CMO: Always combine it with price action, volume, or other indicators for confirmation.

• Misreading Overbought/Oversold: Overbought doesn’t always mean immediate reversal — in strong trends, price can stay overbought or oversold for a long time.

• Ignoring the Context: Always consider the broader market context. A CMO reading by itself is less meaningful without looking at trend direction, support/resistance, and news catalysts.

🧠 Final Thoughts

The Chande Momentum Oscillator is a powerful yet simple tool to gauge the strength of market moves. It offers insights into whether bulls or bears are in control and helps spot overextended price moves. However, like any indicator, it should not be used in isolation.

For best results, combine the CMO with other tools like Moving Averages, support/resistance levels, and volume analysis. With practice, CMO can become an important part of your trading toolbox, helping you make smarter and more confident trading decisions!