CHANDE MOMENTUM OSCILLATOR WITH DIVERGENCE SIGNALS

​Let's take a look at the Chande Momentum Oscillator and the ways that we can use it with divergence signals. It can be used to take some great trades. 

Or we can use it to avoid entering into a trade. ​The Divergence Series Blogs have focused on tools that can be used by intraday and swing traders.

This blog entry is focused on a tool that is really useful to swing traders. If you haven't read the other Divergence Blogs, you can find the RSI, the MACD​, and the ​On Balance Volume

CHANDE MOMENTUM OSCILLATOR

The Chande Momentum Oscillator (CMO) was developed by Tushar Chande to calculate price momentum on up days (like the RSI Oscillator). But also to calculate momentum on down days as well. The formula is interesting: 

1.)  If today's close is higher than yesterdays close, then subtract yesterdays close from today's close. CMOa

2.)  If today's close is lower than yesterdays close, then subtract today's close from yesterdays close. CMOb

3.)  Sum up all the values for the timeframe (I like 13 as the Look back Period)

4.)  CMO= 100 x (CMOa – CMOb) / (CMOa + CMOb)

​FORMULA OF THE CHANDE MOMENTUM OSCILLATOR

The Chande formula calculates the difference between the sum of all recent gains by the sum of all recent losses. Then divides that by the sum of all price movements in the look back period. 

The results are multiplied by 100 to get the -100 and 100 boundaries. It'd be extremely unusual to see the Chande Momentum Oscillator reach the -100 or 100 levels.

The equilibrium point for CMO is the Zero Line. Check out our service for more ways to trade using indicators. Read More

 

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