Chande Momentum Oscillator (CMO)
The Chande Momentum Oscillator, or CMO, is a momentum indicator developed by Tushar Chande. It helps traders measure both the strength and direction of price movement by comparing the total gains and total losses over a specific period. While it shares similarities with RSI, the CMO offers a few unique advantages—especially in how it treats up and down moves equally.
Because of its balanced design, the CMO provides a more sensitive and responsive read on momentum shifts, making it a valuable tool for both reversal traders and trend followers.
How the CMO Works
The CMO calculates momentum by taking the difference between the sum of recent gains and losses, then dividing that by the sum of all price changes, regardless of direction. The result is a number that ranges between +100 and -100, with 0 acting as the midpoint.
Here’s a simplified formula: CMO = [(Total Gains – Total Losses) / (Total Gains + Total Losses)] × 100
And here’s what that means in practical terms:
| CMO Value | What It Suggests |
|---|---|
| Above +50 | Strong bullish momentum |
| Below -50 | Strong bearish momentum |
| Around 0 | Weak or neutral momentum |
While levels like +50 and -50 are used as signals, many traders also watch for moves beyond +70 or below -70 to catch extreme conditions.
How Traders Use It
The CMO works well for identifying both overbought/oversold levels and momentum shifts. Traders often use it in a similar way to RSI or Williams %R—but with a twist: the CMO doesn’t soften sharp price swings, making it ideal for high-volatility markets.
Here’s how it’s typically used:
Overbought/Oversold Signals
When CMO rises above +50, traders may look for a pullback. When it falls below -50, they may watch for a bounce.
Reversal Confirmation
A sudden move from positive to negative territory (or vice versa) can confirm a shift in market sentiment.
Trend Filters
If CMO stays consistently above 0, the market may be in a bullish phase. Below 0 suggests bearish bias.
Example Setup
Imagine you’re analyzing a crypto pair on the one-hour chart. The CMO is climbing past +60, showing strong bullish momentum. Price then forms a sharp bearish engulfing candle, and the CMO drops back below +50.
That’s your potential signal.
You enter a short, using the drop in momentum as confirmation. If the CMO falls through 0 and continues into negative territory, it strengthens your conviction in the move.
This same approach can be reversed in a downtrend when CMO rises sharply above -50 and flips toward the zero line.
Pros and Cons of Using the CMO
Pros
- Reacts quickly to momentum changes
- Treats gains and losses equally
- Ideal for fast-moving or high-volatility markets
- Useful for both trend and reversal strategies
Cons
- May produce false signals in low-volume conditions
- Less widely used, so fewer presets or community strategies
- Can be too reactive on short timeframes without filters
When to Use the Chande Momentum Oscillator
The CMO performs best when you want to track shifts in market sentiment with precision. Whether you’re trading trends, looking for reversal setups, or simply filtering out noise, this indicator gives you a sharp edge. It thrives in volatile conditions where other indicators might lag or smooth out critical data.
If you’re seeking a momentum tool that reacts fast, treats price moves fairly, and offers real insight into shifts in strength, the Chande Momentum Oscillator is one to consider adding to your toolkit. Next one is a very important one. Learn the MACD now!