The Chande Momentum Oscillator (CMO): How to Measure Market Strength
The Chande Momentum Oscillator (CMO): How to Measure Market Strength
The Chande Momentum Oscillator (CMO) is a technical indicator designed to measure momentum strength by comparing recent price gains to losses. Unlike RSI or Stochastic, it considers both upward and downward movements equally, providing a more balanced view of market momentum.
In this guide, we’ll break down how the CMO works, how to use it effectively, and the best CMO trading strategies.
What Is the Chande Momentum Oscillator?
The CMO is an oscillator that ranges between -100 and +100:
- Above +50 → Strong bullish momentum (overbought conditions).
- Below -50 → Strong bearish momentum (oversold conditions).
- Near 0 → Weak or sideways market.
Unlike RSI, the CMO is not bound between 0 and 100, allowing stronger momentum readings.
How the CMO Is Calculated
The CMO formula is:
[
CMO = 100 \times \frac{(\sum \text{Gains} – \sum \text{Losses})}{(\sum \text{Gains} + \sum \text{Losses})}
]
Where:
- Gains = Sum of positive price changes over a given period.
- Losses = Sum of negative price changes over the same period.
The default CMO period is 14, but traders adjust it based on market conditions.
How to Use the CMO in Trading
Identifying Overbought and Oversold Conditions
- Sell when CMO is above +50 and starts reversing downward.
- Buy when CMO is below -50 and starts reversing upward.
CMO Divergence Strategy
- Bullish Divergence: Price makes a lower low, but CMO makes a higher low → Potential reversal.
- Bearish Divergence: Price makes a higher high, but CMO makes a lower high → Potential reversal.
CMO Trend Confirmation Strategy
- If CMO stays above 0, the market is in an uptrend.
- If CMO stays below 0, the market is in a downtrend.
Best CMO Trading Strategies
CMO + Moving Average Strategy
- Buy when CMO crosses above 0 and price is above the 50-day SMA.
- Sell when CMO crosses below 0 and price is below the 50-day SMA.
CMO + RSI Strategy
- Look for CMO confirmation before taking RSI signals.
- Buy when CMO is below -50 and RSI is below 30 (oversold).
- Sell when CMO is above +50 and RSI is above 70 (overbought).
CMO + MACD Strategy
- Use MACD crossovers to confirm CMO signals.
- If CMO is rising and MACD is bullish → Strong buy signal.
- If CMO is falling and MACD is bearish → Strong sell signal.
Best CMO Settings for Different Trading Styles
- Day Trading: 10-period CMO for quicker signals.
- Swing Trading: 14-period CMO (default setting).
- Long-Term Investing: 20-25 period CMO for smoother momentum trends.
Common CMO Mistakes to Avoid
❌ Trading only based on overbought/oversold levels – Momentum can stay extended for long periods.
❌ Ignoring trend direction – Always confirm CMO signals with trend indicators like moving averages.
❌ Using CMO alone – Combine with RSI, MACD, or price action for better accuracy.
Final Thoughts – Should You Use the CMO?
The Chande Momentum Oscillator is a valuable tool for identifying market strength, reversals, and overbought/oversold conditions. When combined with moving averages, RSI, or MACD, traders can improve their trade accuracy and timing.
📌 Want to Trade With the CMO?
Try applying CMO settings on different assets and test how it performs in different market conditions!
