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Chande's Momentum Oscillator
rev. 01/06/97

The following are MetaStock formulas for Tuschar Chande's Momentum Oscillator.
For interpretation refer to the book The New Technical Trader, by Tuschar Chande and Stanley Kroll.

CMO_1
Sum( If( C ,> ,Ref( C, -1 ) , ( C - Ref( C,-1) ) ,0 ) ,14 )

CMO_2
Sum( If( C ,< ,Ref( C ,-1 ) , ( Ref( C,-1 ) -C ) ) ,0 ) ,14 )

CMO_Final
100 * ( ( Fml( "CMO_1" ) - Fml( "CMO_2" )) / ( Fml("CMO_1" ) + Fml( "CMO_2" ) ) )

You could also combine the above three formulas into one formula. The syntax would be:

Chande's Momentum Oscillator

100 *
((Sum(If(C,>,Ref(C,-1),(C-Ref(C,-1)),0),14)) -
(Sum(If(C,<,REF(C,-1),(REF(C,-1)-C),0),14))) /
((Sum(If(C,>,Ref(C,-1),(C-Ref(C,-1)),0),14) +
(Sum(If(C,<,REF(C,-1),(REF(C,-1)-C),0),14))))

 

e-w-Chande_Momentum_Oscillator.gif
 
*** These formulas were constructed using 14 time periods, you can change this by replacing every occurrence of 14 with your desired time period value.

The Chande Momentum Oscillator (CMO) was developed by Tushar Chande. A scientist, an inventor, and a respected trading system developer, Mr. Chande developed the CMO to capture what he calls “pure momentum.” For more definitive information on the CMO and other indicators we highly recommend the book The New Technical Trader by Tushar Chande and Stanley Kroll. The CMO is closely related to, yet unique from, other momentum oriented indicators such as RSI, Stochastic, Rate-of-Change, etc. It is most closely related to Welles Wilder’s RSI (see Relative Strength Index), yet it differs in several ways:
  • It uses data for both up days and down days in thenumerator, thereby directly measuring momentum.
  • The calculations are applied on unsmoothed data. Therefore, short-term extreme movements in price are not hidden. Once calculated, smoothing can be applied to the CMO, if desired.
  • The scale is bounded between +100 and -100, therebyallowing youto clearly see changes in net momentum using the 0 level.

The bounded scale also allows you to conveniently compare values across different securities.

You may find the expert named "Equis - Chande Momentum Oscillator" helpful in interpreting the Chande Momentum Oscillator.See Attaching an Expert to a Chart for more information an experts.

The CMO can be used to measure several conditions.
Overbought/oversold. The primary method of interpreting the CMO islooking for extreme overbought and oversold conditions. As a general rule, Mr. Chande quantifies an overbought level at +50 and theoversold level at -50. At +50, up-day momentum is three times the down-day momentum. Like wise, at -50, down-day momentum is three times the up-day momentum. These levels correspond to the 70/30 levels on the RSI indicator.

You could also establish overbought/oversold entry and exit rules by plotting a moving average trigger line on the CMO. For example, if you areusing the default 20-period CMO, a 9-period moving average may serve as agood trigger line. Buy when the CMO crosses above the 9-period triggerline; sell when it crosses below.

Trendiness. The CMO (much like the VHF indicator, see Vertical Horizontal Filter) can also be used to measure the degree to which a securityis trending. The higher the CMO, the stronger thetrend. Low values of the CMO show a security in a sideways trading range.

You may find the CMO helpful in establishing the entry and exit rules ofa trend following system.
Enter when the CMO is high and exit when it moves lower.
Divergence. Although not specifically mentioned in Mr. Chande’s book, you could also look for divergence between the CMO and the price, as is often done with other momentum indicators.
See the discussion about divergence in the Interpretation section of RSI (see Relative Strength Index).

Other. Although not specifically mentioned in Mr. Chande’s book, you may also look for chart formations (head and shoulders, rising wedges, etc.), failure swings, and support/resistance.

See the discussion on these methods in the Interpretation section of RSI (see Relative Strength Index).

Source / From: TOP
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