Chande Momentum Oscillator (CMO): Formula, Settings, Signals
Chande Momentum Oscillator Indicator Definition
The chande momentum oscillator (CMO) was developed by Tushar Chande and is a technical indicator that attempts to capture the momentum of a security. Chande discussed this and many other indicators in his book “The New Technical Trader”. The chande momentum oscillator indicator differs from other technical indicators like the RSI and MACD, because it uses up and down days in both the numerator and denominator. Below is the formula for the chande momentum oscillator:
Chande Momentum Oscillator
Su is the sum of the difference between today’s close and yesterday’s close. Sd represents the absolute value of the difference between today’s close and yesterday’s close on down days.
Chande Momentum Oscillator Overbought & Oversold Levels
The CMO indicator is a unique oscillator, but like all other oscillators, it has overbought and oversold levels. Since the indicator is based on previous closing prices, it will oscillate between +100 and -100. Traders use a general rule of thumb that when the chande momentum oscillator is greater than +50 the security is said to be overbought, while a reading below -50 is considered oversold. Traders should not simply buy or sell a security because the indicator crosses these thresholds, this is a sure way to lose money.
Trading with the Chande Momentum Oscillator Strategy
Trading with the chande momentum oscillator as a standalone indicator can prove a challenging task. Since the indicator will oscillate between +100 and -100, a break of +50 could mean that it is overbought, but remember the indicator has another 50 points it can run. What many traders do is to apply a moving average to the indicator and will use crosses of the CMO and a simple moving average to generate trade triggers. Another approach is to trade a security when the chande momentum oscillator has reached extreme readings. Extreme readings are an indication that a strong trend is in place, and traders will add to their positions on any minor corrections.
Chande Momentum Oscillator Charting Example
The below chart is courtesy of CMS Forex.
Chande Momentum Oscillator Chart
Key Takeaways
- The Chande Momentum Oscillator (CMO), developed by Tushar Chande, measures pure momentum by using both up days and down days in its numerator and denominator.
- The CMO oscillates between +100 and -100; readings above +50 suggest overbought conditions and below -50 suggest oversold conditions.
- A common default setting is a 9-period CMO, though longer lookbacks (14 or 20) produce smoother, less noisy signals.
- The CMO works best as a confirmation tool alongside trend and volume analysis rather than as a standalone buy or sell trigger.
CMO Settings: Choosing the Right Lookback Period
The Chande Momentum Oscillator is most commonly applied with a 9-period lookback, which is responsive and well suited to short-term and day trading. Traders who find the 9-period CMO too noisy often move to a 14-period setting (the same default many use for the RSI) or a 20-period setting for swing trading. The longer the lookback, the smoother the line and the fewer the whipsaw signals, but the slower it is to flag a genuine momentum shift. As with any indicator, the right setting depends on your timeframe and the volatility of the instrument you trade, which is why it pays to test settings in a simulator before risking capital.
CMO vs. RSI: How They Differ
The CMO and the Relative Strength Index are both momentum oscillators, but they are built differently. The RSI averages gains and losses separately and is bounded between 0 and 100, with 70 and 30 as the conventional overbought and oversold lines. The CMO instead takes the net difference between the sum of up-day moves and down-day moves over the lookback period, then scales the result between -100 and +100. Because it uses the net of both directions, the CMO tends to be more sensitive and can reach its extremes faster than the RSI. Many traders use the two together: the RSI for a stable read on the trend and the CMO for an earlier warning that momentum is accelerating or fading.
A Simple CMO Trading Strategy
A practical way to use the CMO is as a confirmation layer rather than a standalone trigger. First, establish the prevailing trend using a moving average or price structure. In an uptrend, look for the CMO to pull back toward zero or into mildly negative territory and then turn higher, signaling momentum is resuming with the trend. Avoid acting on an overbought reading above +50 as an automatic sell in a strong uptrend, since momentum can stay elevated for extended periods. Combine the CMO with volume and support-and-resistance levels, and always define your stop-loss before entering. Practicing this approach in a risk-free trading simulator is the fastest way to learn how the oscillator behaves across different market conditions.
Frequently Asked Questions
What is the Chande Momentum Oscillator?
The Chande Momentum Oscillator (CMO) is a momentum indicator created by Tushar Chande. Unlike the RSI, it uses the sum of both up-day and down-day price changes in its calculation, producing a value that oscillates between +100 and -100.
What are the best settings for the CMO?
A 9-period CMO is the common default and reacts quickly to price. Traders who want fewer false signals often use a 14- or 20-period setting, which smooths the oscillator at the cost of some responsiveness.
What are the overbought and oversold levels for the CMO?
The CMO ranges from +100 to -100. Readings above +50 are generally considered overbought and readings below -50 oversold, though these thresholds should be confirmed by trend and price action rather than traded blindly.
What is the difference between the CMO and the RSI?
Both measure momentum, but the RSI only uses the average of gains and losses and is bounded 0 to 100, while the CMO uses the net of up and down moves and is bounded -100 to +100. The CMO is generally more sensitive and can reach extremes faster than the RSI.
Is the Chande Momentum Oscillator reliable on its own?
No single oscillator is reliable in isolation. The CMO is most effective when combined with trend identification, support and resistance, and volume, and when tested first in a trading simulator.
