Chande Momentum Oscillator Strategy Best Indicator Combination Chande Momentum Indicators MetaTrader 4

chande momentum oscillator

As the oscillator measures the strength of the trend, the calculations suggest that the greater the value of CMO, the greater the trend’s strength. The main difference is that the RSI indicator is based on the speed of price movements while the CMO indicator is based on the closing price for each day. Despite the difference in calculation, both of them provide similar values. If the oscillator is reaching extreme overbought levels such as 50+, a trade could short the market.

chande momentum oscillator

On a chart, the values calculated for every period form a line oscillating between two (-100 and +100) levels. Conversely, when the line goes down,
a downtrend is present. The line moving horizontally for a noticeable period of time (between -25 and +25) suggests a sideways market presence. When prices are persistently higher or lower than a certain level above or below the O line, an instrument is supposed to be overbought or oversold and a trend reversal can be expected. The values of
overbought and oversold levels are selected individually, but the most common ones are +50 and -50 respectively. As all oscillators, CMO is always drawn in an additional area below the market price chart.

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The CMO is calculated using a specific formula, which involves comparing the sum of recent gains and losses to the sum of all price movements over a defined period. The CMO indicator is a unique oscillator, but like all other oscillators, it has overbought and oversold levels. Since the indicator is based on previous closing prices, it will oscillate between +100 and -100. Traders use a general rule of thumb that when the chande momentum oscillator is greater than +50 the security is said to be overbought, while a reading below -50 is considered oversold. Traders should not simply buy or sell a security because the indicator crosses these thresholds, this is a sure way to lose money. A security is deemed to be overbought when the Chande momentum oscillator is above +50 and oversold when it is below -50.

The CMO is an indicator for trying to anticipate the direction of the trend. The oscillator can becomes more effective when it is combined with Moving Averages to identify the trend direction. Like any other momentum oscillator, the CMO gauges the direction of the price. Another approach of using the Chande Momentum Oscillator is to identify the zero line. In this, if the price of an asset is rising and the CMO crosses the zero line, it is usually a sign that momentum is building-up. Therefore, it is a sign to either buy or continue holding the asset.

Closer Look

You’ll see how other members are doing it, share charts, share ideas and gain knowledge. The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers.

The CMO is available as a built-in indicator in the TradingView. However, it is not built-in in MetaTrader 4 and 5, meaning that you need to download and install it directly from the marketplace. When applied in a chart, the CMO is usually a single line that moves up and down. It has a zero line, which is often the most important part of the indicator.

Chande Momentum Oscillator conclusion

Trend trading is the best and profitable forex trading strategy. Feel free to ask questions of other members of our trading community. We realize that everyone was once a new trader and needs help along the way on their trading journey and that’s what we’re here for. While measuring the CMO with my drawing tools, I noticed that Fibonacci lines made this easier. You also see a warning signal was generated when the CMO crossed the 50 line.

  • What we really care about is helping you, and seeing you succeed as a trader.
  • CMO (Chande Momentum Oscillator) is another momentum oscillator.
  • Any information posted by employees of IBKR or an affiliated company is based upon information that is believed to be reliable.
  • The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security.
  • The current average of 0 means it’s neither overbought nor oversold – it’s trading sideways.

Like its fellow oscillators, the CMO is suitable for both short-term and long-term timeframes. Therefore, every type of trader can use Chande for their trading strategies. It can also pinpoint exact entry and exit points, giving traders a better understanding of whether they are entering or exiting at the right time. The CMO indicator can be used to trade by market buying and selling using spot orders or placing futures trades. The most commonly used strategy is to do the reverse of the market when it goes into extreme overbought or oversold territory.

What Is the Chande Momentum Oscillator Formula?

Conversely, if traders are panic-selling their Bitcoin, the indicator goes below -50% into oversold territory. This oscillator is similar to other momentum indicators such as
the Relative Strength Index and the Stochastic Oscillator because it is range bounded (+100 and
-100). Each day our team does live streaming where we focus on real-time group mentoring, coaching, and stock training.

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Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses.