Do you question if a method exists to discern whether the stock you observe is building strength or diminishing in vigor? 

This is where the Chande momentum oscillator (CMO) comes in. It’s a tool for technical analysis – assisting traders in understanding the power that drives the movement of a stock’s price.

Think of it like a speedometer for market trends. The CMO considers not just changes in price but also takes into account how much fluctuation there is in the market. This more detailed examination can assist traders in identifying possible changes in the market trend, enabling them to make wiser choices on when to purchase or sell.

In this article, we will explain the functioning of the CMO, how to understand its messages, and methods for applying it in personal trading activities.

Unveiling the Chande Momentum Oscillator

The Chande Momentum Oscillator, also known as CMO, is a method for technical analysis that attempts to give an accurate measurement of momentum. It was devised by Tushar Chande, who has been highly reputable in this particular field. This tool is unique because it provides exact quantification of momentum and deep comprehension. The primary role of an indicator such as RSI is to gauge the magnitude and direction of price shifts over a specific period (usually ranging from several days to few weeks). This provides traders with an active metric representing market sentiment, just like the Fear and Greed index

The CMO is different from other market indicators because it looks at both the good and bad days in its calculation time. Other momentum indicators like moving averages that might only look at final prices or one part of price changes, but the CMO carefully checks all recent increases in a security’s price against all recent decreases. This method provides a more equal and complete perspective on market movement by showing how strong the buying or selling force is, without being confused by price jumps or quick movements that don’t follow the trend.

The special thing about the CMO is that it’s very flexible; it doesn’t just show when things are overbought or oversold. It goes further, helping traders to understand small changes compared to big trends and because of this, they can make plans based on strong signals of momentum. The oscillator moves back and forth from minus 100 to plus 100, where numbers near the very high or low points show a lot of strength in one way or the other. This scale gives an exact number for how strong the market is, which makes CMO a useful tool for people who want to understand and do well in the difficult financial markets.

The Mechanics Behind the Chande Momentum Oscillator

The Chande momentum oscillator, or CMO, works on a simple but effective idea. It measures the momentum of the market by looking at how strong price increases are compared to how strong price decreases are within a certain time frame. The trader usually decides this time frame; it can change but most times includes 20 to 30 periods for keeping a good balance between being responsive and reliable. The brilliance of the CMO is in how it simplifies the comparison to just one momentum number, giving understanding about what drives the market.

To find out the CMO, you first work out the total of all increases in price and all decreases within your selected time frame. You say it is a price increase when today’s closing price is more than yesterday’s if on that day market ends up higher. On the other side, when the market ends a day lower than it started, this is what we call a price loss. This method gets to the heart of what drives market movement by measuring how much people want to buy versus how much they want to sell.

image of the CMO formula

The calculation we did gives a number that can range from negative 100 to positive 100. When the value is positive, it indicates more people are buying than selling which suggests an increase in price movement. Conversely, when this value shows as negative it signifies there are more sellers than buyers and hints towards a decrease in price movement. When the CMO moves further away from zero, the momentum becomes stronger. Values that are extremely close to +100 or -100 show times when market pressure is strong, either in a positive or negative direction. 

Grasping how the CMO works gives traders the ability to read momentum indications with precision, and they can incorporate these insights into their wider trading plans to make the most of existing market directions or foresee trend changes.

Deciphering Signals from the Chande Momentum Oscillator

The Chande momentum oscillator gives traders a complex collection of signals that each reveal different information about the market situation. Knowing how to interpret these signals, especially when they show if something is overbought or oversold, is very important for making smart trading choices.

The CMO value ranges from minus 100 to plus 100. Frequently, we utilize markers for overbought when it surpasses plus 50, and oversold if it drops below minus 50. If the condition is overbought, this might imply that the cost of an asset has become excessively high and could soon decrease as fewer people show interest in purchasing more of it. Alternatively, if an asset is overbought, this indicates that its price has risen too high. As more individuals continue to sell the asset, it could lead to a decrease in its value. Those who trade observe these limits as cues for deciding where and when they might purchase or sell – they pay close attention to the indicator moving out of such extreme zones which hints at a potential change in direction of prices. 

Understanding CMO Indicators: When the CMO value goes up, it means more bullish movement and that the price of the asset will probably keep going higher. This could be seen by traders as a good sign to start or maintain long positions. Alternatively, if the CMO is going down, it shows that there might be a stronger negative trend coming. This suggests prices could fall soon. Traders then might think about selling or stopping their investments to reduce risk.

The power of the CMO signal is significant as well. When readings are near +100 or -100, it shows very strong momentum and trends that might last longer. Additionally, people who trade need to watch carefully for differences between the CMO and how the prices move. If the price of something goes up to new high levels but the CMO does not increase as well, this might show that strong buying interest is getting less, which could mean that the trend might change direction soon.

By skillfully reading these signs from the Chande momentum oscillator, traders are able to improve their trading approach. They make more detailed choices that rely on the basic momentum and market situations. The CMO is important for traders because it helps them spot possible reversals when there’s too much buying or selling, as well as check how strong a trend is by looking at divergences.

Formula Breakdown: Calculating the Chande Momentum Oscillator

The Chande momentum oscillator measures market movement by looking at how strong the wins are compared to the losses during a certain time. The formula for CMO is very clever and gives traders an accurate way to understand what’s happening in the market. Here’s how it’s calculated:

For every day in the selected time frame, determine how much the closing price has changed from the close of the last day to get a list of daily price variations.

Divide the profits and losses: Take the different changes in price and split them into two groups – one for increases, which are positive numbers, and another for decreases, showing as negative numbers. If there is a day when the price stays the same, then both profit and loss should be counted as zero.

Calculate the total gains and also calculate all losses as positive numbers by using absolute value, for comparing them over the selected time period.

Apply the CMO Formula: The formula for the CMO is as follows:

image of the CMO formula

This calculation gives a number from minus one hundred to plus one hundred, showing the market’s force. When numbers are positive, it means wins are more than losses and this shows a strong market trend upwards. If numbers are negative, then losses are more than gains which tells us that the market has a downwards trend.

Significance of Output Values

The values that the CMO gives are important for many reasons. When these numbers are near plus one hundred, it shows a lot of positive market movement, meaning there could be too much buying and the market may change direction soon. On the other hand, when values are close to -100 it shows a powerful downward trend hinting that the condition might be oversold and ready for recovery. If values are near zero, this points to no strong movement in either direction, implying that the market is stable or changing.

When traders dissect the formula of the CMO and comprehend its important results, they can use this oscillator to measure how strong market trends are, spot possible trend changes, and decide on trades with better information.

Real-World Application: The Chande Momentum Oscillator in Practice

When April 2024 began, Apple Inc. (AAPL) was dealing with difficult conditions, showing their weakest quarterly performance compared to the last ten years against the S&P 500 index. The Chande momentum oscillator (CMO) for AAPL over the past fourteen days gives a clear image of this situation. The CMO, which had fallen into negative area, started to move slowly towards the zero mark – a small sign of possible change in momentum for traders who watch carefully.

Soon after, Apple saw a bigger decline than what was usual in the market, which we could see through how slowly the CMO improved. The investors possibly thought that because this tool had difficulty going above zero level, it would be better to wait and see or look for clearer signs of positive movement before deciding to invest.

Check out the relationship between price movements, volume, and the CMO on AAPL’s chart from the last couple weeks: 

Two-week chart of Apple Inc.'s stock showing price fluctuations with the Chande momentum oscillator beneath, illustrating a tentative shift in momentum after recent market underperformance.

AAPL’s Resilience Amidst Challenges: A Two-Week Journey with the Chande Momentum Oscillator

Even with recent decreases, the stock remains popular due to a number of good factors. Near the end of 14 days, this measure pointed to a likely reduction in negative trends. Although it’s not a certain sign of an upward trend, the direction of the CMO might have given traders a hint to get ready for possible chances if the main elements that keep Apple well-liked lead to a recovery in the market.

Essentially, the Chande momentum oscillator for AAPL suggests caution, mirroring the stock’s recent lag behind the S&P 500. Despite a slight momentum shift hinting at potential recovery, the stock’s sustained popularity could indicate an opportunity for watchful traders anticipating market corrections.

Pros and Cons

The Chande momentum oscillator, or CMO for short, has a special way to calculate market momentum and it brings some advantages as well as disadvantages. If traders know about these things, they can use the CMO better in their overall trading plans.


  • The CMO is very good at giving a clear, measurable way to see the market’s movement. By showing the difference between days when the market goes up and when it goes down during a certain time, it gives a detailed understanding of what makes the market move. This helps traders decide what to do by looking at how strong the trends are.
  • The CMO, having a scale that goes from minus 100 to plus 100, is very good at recognizing when something is too much bought or sold. This understanding can warn people who trade about possible times when the direction might change, helping them decide when to start or stop their trades.
  • The application of the CMO is versatile because it can be used in different markets and time periods. This means many trading strategies, from short-term day trading to swing trading setups or longer-term investing, can benefit from it.


  • The CMO, like other indicators that follow momentum, comes after the fact because it uses previous price information. This trait might slow down recognizing when trends shift and result in lost chances or timing mistakes for entering or leaving trades.
  • The CMO’s readings might be affected by short-term changes in the market, which can cause it to give false signals when markets are unstable. This shows that one must interpret with caution and check the results using extra analysis.
  • Necessity of Additional Instruments: Although the CMO provides important indications about market momentum, depending only on this oscillator might be restrictive. Its utility greatly increases when it is combined with different analytical tools like indicators that show trends or fundamental analysis to verify signals and create a broader strategy for trading.

When traders include the CMO in their trading tactics, they get a strong method to evaluate momentum and how the market feels. Yet, it’s important they recognize its restrictions and use it with different analysis tools for improving its effectiveness. This way can result in better-informed choices in trading.

Chande Momentum Oscillator vs. Stochastic Oscillator

The toolkit to examine the financial market contains numerous indicators, each offering a unique perspective on market fluctuations. The Chande momentum oscillator and stochastic oscillator are significant as they gauge the velocity of shifts and sentiments within the marketplace. Both are utilized for identifying when there is excessive buying or selling, yet the methods employed to determine this, the comprehension by individuals and their application distinctively vary.

Calculation and Methodology

The CMO pays attention to the difference between total gains and losses in a certain time frame, adjusted to move within -100 and +100 range. This method measures momentum by looking at how strong the price goes up or down, giving a clear picture of what people feel about the market.

The stochastic oscillator, it compares the last price to the range of prices in a time frame. It makes two lines called %K and %D – where %D is an average of the %K line. These lines move between 0 and 100 values. The method is based on the idea that when prices are going up, they often come close to the highest points of the period and when they go down, they get near to the lowest points.


The range of the CMO makes it easy to understand: when the values are close to +100, it means there is a strong upward trend in prices, and when they approach -100, it shows a downward trend. The line at zero acts as a balance point for momentum; if we cross this line, it signals that the power of the price movement direction is changing.

When the stochastic oscillator value is more than 80, it usually means that the asset has been bought too much, and when it is under 20, it shows that the asset might have been sold too much. The crossing of %K line and %D line points to possible places where the trend could change direction. Understanding this within the larger ongoing trend is very important for making sense of these signals.

Application in Trading

The CMO’s focus on momentum is helpful for spotting when trends keep going or change direction. Having a definite numerical scale helps to set exact limits for making trade choices.

When you trade, deciding whether to use the CMO or the stochastic oscillator depends on your trading plan and how the market is at that time. The CMO gives a view based on momentum which is very good for methods that follow trends. On the other hand, if a trader wants to make gains from market volatility and extreme prices, then using the stochastic oscillator might be better. When you mix them together, along with volume analysis tools like On-Balance Volume (OBV), you get a full picture of how the market behaves. You use what is good from both sides to make trading choices that consider everything.


As we finish looking at the Chande momentum oscillator (CMO), it is clear that this tool offers a different and useful way to analyze markets. It stands out from other indicators because it uses momentum calculations, giving traders a straightforward measure of how strong the market is. This straightforward method makes it easier to make clear decisions when spotting possible changes in trends and also when making sure that current trends continue, which is why the CMO is a very important tool for traders to analyze with.

When you compare the CMO to the stochastic oscillator, it shows that traders have many different tools they can use, and each tool has its good points for understanding how markets move. The CMO is useful because it tells you about how fast prices are changing, but the stochastic oscillator is very good at finding out when things are too expensive or too cheap. This shows why choosing the correct instrument for a specific market condition is so important. Using these signals together can improve a trading plan, giving a deeper insight into the market trends.

The success of the Chande momentum oscillator, similar to other tools for analysis, is reliant on how it’s used and the proficiency of the trader using it. Adding this CMO into a larger plan that uses different technical and basic analyses could create a strong structure to support smart decisions in trading. For even more timely insights, consider incorporating real-time trade signals into your strategy. Traders keep looking for top tools to understand the complicated financial markets, and the CMO is a strong tool that helps read momentum and direct strategic trading moves.

Chande Momentum Oscillator: FAQs

How Does the Chande Momentum Oscillator Differ from Other Momentum Indicators?

The Chande Momentum Oscillator stands out because it calculates momentum by looking at upward and downward movements during a certain time frame, putting the total of increases side by side with the total of decreases. This method gives a detailed perspective on market momentum, setting it apart from other indicators, like donchian channels, that may focus on price ranges rather than the relative intensity of upward and downward price movements.

What are the Typical Threshold Values for Identifying Overbought and Oversold Conditions with the CMO?

Usually, the CMO sets a level of plus 50 to show that an asset is overbought and minus 50 for when it is oversold. These points mean that the market’s force has gone too far, which might tell us that there could be a change soon or the present movement may get much weaker.

Can the CMO Be Used to Predict Market Reversals?

The CMO can predict when the market will change direction, particularly when there are very high or low values. Conditions of too much buying or selling and differences between what the CMO shows and actual price movements might signal that a trend reversal could happen. It is significant to apply the CMO together with additional analytical instruments for verification.

How Does the Time Period Selection Affect the Sensitivity of the Chande Momentum Oscillator?

Selecting the time length affects how sensitive the CMO is. If you choose a shorter length, it reacts more to price changes and shows quick market shifts but might also make the results more unstable. When you use a longer time for the oscillator, it makes its ups and downs less sharp. This way, it’s easier to see the bigger momentum trends over time but it reacts slower to changes.

In What Market Conditions Is the CMO Most Effective?

The CMO works best in markets that show clear trends because it measures how strong the trend’s momentum is, which helps traders see if the trend will keep going or if it might change. It can give useful information for both rising and falling markets. However, when the market is very unstable or moving sideways without a definite direction, its usefulness might not be as good since signals about momentum may not be so trustworthy.