Chande Momentum Oscillator
All of us know about the popular momentum oscillator RSI and may be using it for day trading, swing and positional trading. But a very few traders are aware of the existence of such momentum oscillator and hence I had decided to enlighten about this yet another powerful indicator.
The Chande Momentum Oscillator, also called as tushar chande indicators. In short it is called as CMS was developed by a person called Tushar Chande in mid 90's. This incorporates concepts from linear regression. Here is the calculation behind this indicator.
Chande momentum oscillator formula
First the sum of all the recent higher closes are calculated and in the same way the recent lower closes are also calculated. And the difference is divided by the sum of all the price movements over the given period. Usually the 20 periods are considered for the calculation.
Chande momentum oscillator strategy
If the value of CMO is above +50, then it is marked as overbought and if it is below -50 then it is marked as oversold territory. Needless to say that if the value is with in +50 to -50 then it means the stock value is moving in sideways.
You can see in the above image that whenever CMO crosses +50 the stock went up and when it goes below -50 the stock value went down.
Chande forecast oscillator strategy
Also when chande momentum indicator (CMO) line crosses above 9 period moving average it is considered as buy signal and when it crosses below 9 period moving average, it is considered as sell signal
One significant feature of this indicator is that it often forms the important chart patterns such as double top and double bottom. This gives great support for the trader to take decision along with other signals.
Chande momentum oscillator formula excel
To back test how the data is changing, you can create an excel, call it as chande momentum oscillator formula excel and plot the data using the above said formula to see how the indicator is moving in the chart.
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