Chande Momentum Oscillator (CMO) – What It Is & How to Trade with It

Chande Momentum Oscillator (CMO) – What It Is & How to Trade with It

What is the Chande Momentum Oscillator (CMO)?

The Chande Momentum Oscillator (CMO) is a technical momentum indicator developed by Tushar Chande to measure the strength of price movements. Unlike traditional oscillators like RSI or Stochastic, the CMO accounts for both upward and downward price changes, making it highly responsive to market momentum.

The CMO is calculated using the following formula:
CMO = [(Sum of Up Moves – Sum of Down Moves) / (Sum of Up Moves + Sum of Down Moves)] × 100

Where:

• Up Moves = Total gains over a selected period.
• Down Moves = Total losses over a selected period.

Key Features of CMO

• Measures trend strength and momentum shifts.
• Identifies overbought (above +50) and oversold (below -50) conditions.
• Filters out market noise better than traditional oscillators.

How to Use CMO in Forex Trading

1. Overbought & Oversold Strategy

CMO helps traders identify market extremes and potential reversals:

• Buy Signal: When CMO drops below -50 (oversold) and moves back up.
• Sell Signal: When CMO rises above +50 (overbought) and moves back down.

Trading Tip: This strategy works best in ranging markets, where price oscillates between support and resistance.

2. CMO Divergence Strategy

Divergence between price and CMO can indicate trend reversals:

• Bullish Divergence: Price forms a lower low, but CMO forms a higher low (buy signal).
• Bearish Divergence: Price forms a higher high, but CMO forms a lower high (sell signal).

3. CMO with Moving Averages

Pairing CMO with a moving average (e.g., 50 EMA) can refine trade signals:

• Buy when: CMO crosses above zero & price is above the 50 EMA.
• Sell when: CMO crosses below zero & price is below the 50 EMA.

Pros and Cons of Using CMO

✅ Pros:

• More responsive than RSI and Stochastic.
• Effective for detecting trend momentum.
• Filters out noise in choppy markets.

❌ Cons:

• Can give false signals in strong trends.
• Requires additional confirmation for best results.

Final Thoughts

The Chande Momentum Oscillator (CMO) is a powerful momentum indicator that helps traders gauge trend strength, spot reversals, and optimize trade entries. When combined with other indicators, CMO enhances trade accuracy and decision-making.