How to do Chande Momentum Oscillator in Excel

Chande Momentum Oscillator Overview

Chande Momentum Oscillator or CMO attempts to address few drawbacks of RSI by frequently identifying overbought and oversold price movements. CMO technical indicator was developed by Tushar Chande and is similar to the Relative Strength Index. You can read more about CMO in his bookThe New Technical Reader.

Unlike RSI, CMO calculations are based on closing prices that have not been smoothed for extreme short term movements. Overbought and oversold movements can be identified through CMO. The scale for CMO ranges between -100 and +100. More details about this oscillator can be found in the book, The new Technical Trader. This post shows you step by step how to do Chande Momentum Oscillator in Excel.

CMO Calculation

$CMO = \{\frac{Su - Sd}{Su + Sd}\} * 100$

Su = Sum of the difference between today’s close and previous close for the specified period. Up days are days when today’s close is greater than the previous close.

Sd = Sum of the absolute difference between today’s close and previous close on down days for the specified period. Down days are days when today’s close is less than the previous close.

How does CMO work

CMO oscillates between -100 and +100. An asset or a stock is considered overbought when the value is above 50 and oversold when the CMO is below -50. Traders are advised to exercise caution entering new long positions when the CMO is over 50 and entering fresh short positions when the CMO is under -50. A cross over to 0 can be an indication of a bullish pattern, while crossovers to below 0 can indicate a bearish move.

You will notice that CMO measures the trend strength. The higher the absolute value of the CMO, the stronger the trend. Lower absolute values of the CMO indicate sideways trading ranges. If the underlying price movements make a new high or a low that is not aligned with CMO, the divergence can signal a price reversal.

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