Chande Momentum Oscillator¶
OVERVIEW¶
The Chande Momentum Oscillator (CMO) is a technical momentum indicator that measures the ratio of cumulative gains to cumulative losses over a specified period to identify overbought and oversold conditions. Created by Tushar Chande, the CMO oscillates between +100 and -100.
Note
Unlike the RSI, the CMO calculates the direct difference between the sum of gains and the sum of losses, dividing by total absolute price movement. This unsmoothed calculation makes the CMO more volatile and responsive to sudden price shocks.
FORMULA¶
The standard lookback period is 14 days.
| Variable | Definition |
|---|---|
| SG (Sum of Gains) | Sum of all positive price changes over the 14 periods |
| SL (Sum of Losses) | Sum of all negative price changes over the 14 periods (absolute value) |
| CMO | [(SG − SL) / (SG + SL)] × 100 |
- The numerator (SG − SL) captures directional momentum.
- The denominator (SG + SL) normalizes output to the −100 to +100 scale.
Note
If a security has zero volatility over the lookback window, the denominator equals zero and the CMO is undefined.
WORKED EXAMPLE¶
TSLA over a 14-day window produces the following data:
| Component | Value |
|---|---|
| Up days | 8 |
| Down days | 6 |
| Sum of Gains (SG) | $25 |
| Sum of Losses (SL) | $10 |
CMO = [($25 − $10) / ($25 + $10)] × 100 = [$15 / $35] × 100 = 42.86
Tip
A reading of 42.86 indicates strong bullish momentum. TSLA is approaching overbought territory, prompting traders to tighten stop losses or prepare for a mean-reversion trade.
HOW TO USE¶
| Signal | Condition |
|---|---|
| Buy signal | CMO crosses above −50 |
| Sell signal | CMO crosses below +50 |
| Overbought threshold | CMO above +50 |
| Oversold threshold | CMO below −50 |
| Long bias filter | CMO above 0 |
| Short bias filter | CMO below 0 |
Common applications:
- Spotting extreme momentum conditions and trend exhaustion
- Identifying bullish or bearish divergences where price makes a new extreme but the CMO fails to confirm
- Using the 0 line as a trend direction filter for position bias
CMO VS RSI COMPARISON¶
| Attribute | CMO | RSI |
|---|---|---|
| Smoothing method | None — raw calculation | Exponential moving average |
| Sensitivity to outliers | High | Low |
| Speed to extremes | Faster | Slower |
| Best use case | Short-term scalps | Multi-week trend following |
| Range | −100 to +100 | 0 to 100 |
Note
CMO and RSI are not interchangeable. The RSI smooths outlier days, while the CMO weights recent volatility more heavily. Do not substitute one for the other in a strategy without recalibrating signal thresholds.
LIMITATIONS¶
- The lack of smoothing makes the CMO susceptible to market noise, producing false signals in choppy, sideways conditions.
- Pair the CMO with a moving average to filter errant oscillations before acting on signals.
- Extreme readings are reached faster than the RSI, making the CMO less suitable for holding through multi-week trends without additional confirmation.