Chande Momentum Oscillator (CMO) was introduced by Tushar Chande who has also invented the Chande Forecast Oscillator. The oscillator is created by calculating the difference between the sum of all recent gains and that of all recent losses over a particular period of time. Then the obtained result is divided by sum of all price movement over that period of time. The oscillator is range bound and the values hover between +100 to -100. The price of the stock moves to overbought zone when the oscillator move beyond +50 and price moves to oversold zone when the oscillator goes below -50. Zerodha Kite charts can plot this indicator instantly.
Chande Momentum Oscillator Formula
(Sum of all the gains – Sum of all the differences / Sum of all the gains + Sum of all the differences) * 100
How to set up Chande Momentum Oscillator in Zerodha Kite?
- Go to MarketWatch.
- Choose the stock you are going to trade.
- Right click on the stock and select chart from graphic icons.
- Chart window of the stock opens.
- Go to studies. Select studies.
- Go to Chande Momentum Oscillator and click on it.
- A small window opens with default parameters of the indicator.
- Once the parameters are selected, the Done command is chosen, the parameters window goes off the screen and the indicator is plotted on stocks price.
CMO in intraday –
- The indicator shows price trend and trading opportunities.
- The picture above shows State Bank of India (SBIN) stock price movement with respect to the indicator.
- The chart shows 1 min. timeframe.
- The strategy shows the price trend. Understanding price trend from this indicator is important before creating a position.
- In 1 minute chart, traders may find many whipsaws which will be eliminated if longer time frames are used and this indicator is used with a combination of other indicators.
- Create short position when the oscillator starts coming down after reaching overbought zone.
- Exit from the stock or create fresh buy once the oscillator goes up after moving off from the oversold zone.
Some traders even use this indicator to trade the possible trend. They enter a buy trade when the Chande Momentum Oscillator is reading high and exits when the indicator moves below a certain threshold. You can judge when a market is choppy by the reading of this oscillator if remains between +25 to -25. So if other indicators are showing a trend and Chande Momentum Oscillator is in the chop zone, it denotes that the trend is lacking momentum and it is better to avoid trade that time.