DEFINITION of 'Chande Momentum Oscillator '

The Chande momentum oscillator is a technical momentum indicator invented by Tushar Chande. Chande introduced the indicator in his 1994 book “The New Technical Trader. “It 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 the period.

The Chande momentum oscillator formula is:

CMO = 100 x ((Su – Sd) / (Su + Sd))

Image depicting an example of the Chande momentum oscillator

BREAKING DOWN 'Chande Momentum Oscillator '

This oscillator is similar to other momentum indicators such as the Relative Strength Index and the Stochastic Oscillator except that is measures momentum on both up and down days. The oscillator also does not use smoothing which makes it reach oversold and overbought levels more frequently. The indicator oscillates between +100 and -100.

Chande Momentum Oscillator Interpretation

A security is deemed to be overbought when the Chande momentum oscillator is above +50 and oversold when it is below -50. Many technical traders add a 10-period moving average to this oscillator to act as a signal line. The oscillator generates a bullish signal when it crosses above the moving average, and a bearish signal when it moves below the moving average. 

The oscillator can be used as a confirmation signal when it crosses above or below 0. For example, if a trader notices that the 50-day moving average has crossed above the 200-day moving average (golden cross), he or she could confirm the buy if the Chande momentum oscillator has crossed above 0; this would suggest prices were showing upward momentum.

Trend strength can also be measured using the Chande momentum oscillator. The higher the oscillator's value, the stronger the trend; the lower the value, the weaker the trend. (To learn more, see: How do I Build a Trading Strategy with the Chande Momentum Oscillator?)

Chande Momentum Oscillator and Price Divergence

Traders can use the Chande momentum oscillator to spot positive and negative price divergence between the indicator and the underlying security. A negative divergence occurs if the underlying security is trending upward and the Chande momentum oscillator is moving downwards. A positive divergence occurs if price is declining, but the oscillator is rising. In the example below, Apple Inc. made a new high in late August and another new high in late September. The oscillator, however, made a lower high in late September, confirming negative divergence. Traders who decided to take a short position in the stock could place a stop-loss order above the September swing high and cover when the oscillator crosses below -50. (For further reading: What Does it Mean to Use Technical Divergence?)

Image depicting an example of price and oscillator divergence.

  1. Oscillator

    A technical analysis tool that is banded between two extreme ...
  2. Price Zone Oscillator

    The Price Zone Oscillator plots a graph that shows whether or ...
  3. Stochastic Oscillator

    A technical momentum indicator that compares a security's closing ...
  4. Detrended Price Oscillator (DPO)

    A detrended price oscillator is an oscillator that strips out ...
  5. Signal Line

    Signal lines are used in technical indicators, especially oscillators, ...
  6. Derivative Oscillator

    The Derivative Oscillator applies a MACD histogram to a double-smoothed ...
Related Articles
  1. Trading

    Percentage Price Oscillator – An 'Elegant Indicator'

    The percentage price oscillator, which measures momentum, is among the more sophisticated tools in the technical analysis arsenal.
  2. Trading

    How To Profit From The "Night and Day" Aroon Oscillator

    “Aroon” is a Sanskrit word loosely translated as the transition from night to day, appropriate for a measure that attempts to determine when a trend is about to develop into something of substance. ...
  3. Trading

    An Introduction to Oscillators

    Find out how this indicator may help improve the average investor's entry and exit points.
  4. Trading

    MACD And Stochastic: A Double-Cross Strategy

    The stochastic oscillator and the moving average convergence divergence (MACD) are two indicators that work well together.
  5. Trading

    How to Use the Chaikin Oscillator

    What's the best way to reconcile increasing or decreasing volume with price fluctuations? Enter the Chaikin Oscillator.
  1. How do I read and interpret an Stochastic Oscillator?

    Understand the basics of the stochastic oscillator and how analysts and traders use this measure of trend momentum to predicts ... Read Answer >>
  2. What are the best technical indicators to complement the Stochastic Oscillator?

    Explore the function of the stochastic oscillator indicator, and discover other technical indicators traders use to complement ... Read Answer >>
  3. What technical tools can I use to measure momentum?

    One of the main goals of every trader using technical analysis is to measure the strength of an asset's momentum and the ... Read Answer >>
  4. What are the main differences between Williams %R oscillator & The Relative Strength ...

    Learn about the Williams %R indicator and how this momentum oscillator differs from the relative strength index (RSI) both ... Read Answer >>
  5. What are the main differences between momentum and trend?

    Learn to differentiate between trend and momentum, two seemingly similar concepts central to the understanding of technical ... Read Answer >>
  6. What's the difference between Chaikin Money Flow (CMF) and Money Flow Index (MFI)?

    The similarities between Chaikin money flow and the money flow index end with the idea that they are both commonly used by ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center