Chande Momentum Oscillator
What Is the Chande Momentum Oscillator?
The Chande momentum oscillator is a technical momentum indicator presented by Tushar Chande in his 1994 book The New Technical Trader. The formula calculates the difference between the sum of recent gains and the sum of recent losses and afterward isolates the outcome by the sum of all price developments over a similar period.
The Formula for the Chande Momentum Oscillator
Step by step instructions to Calculate the Chande Momentum Oscillator
- Calculate the sum of higher closes over N periods.
- Calculate the sum of lower closes over N periods.
- Subtract the sum of lower closes over N periods from the sum of higher closes over N periods.
- Add the sum of lower closes over N periods to the sum of higher closes over N periods.
- Partition step 4 from 3 and duplicate by 100.
- Plot the outcome.
Figuring out the Chande Momentum Oscillator
The Chande oscillator is like other momentum indicators, for example, Wilder's relative strength index (RSI) and the stochastic oscillator. It measures momentum on both all over days and doesn't smooth outcomes, triggering more continuous oversold and overbought entrances. The indicator oscillates among +100 and - 100.
Chande Momentum Oscillator Interpretation
A security is considered to be overbought when the Chande momentum oscillator is over +50 and oversold when it is below - 50. Numerous technical traders add a 10-period moving average to this oscillator to act as a signal line. The oscillator produces a bullish signal when it crosses over the moving average and a bearish signal when it dips under the moving average.
The oscillator can be utilized as a confirmation signal when it crosses above or below the 0 line. For instance, in the event that the 50-day moving average crosses over the 200-day moving average (golden cross), a buy signal is confirmed when the Chande momentum oscillator crosses over 0, it are made a beeline for foresee prices.
Trend strength can likewise be estimated utilizing the Chande momentum oscillator. In this methodology, the oscillator's value means the strength or weakness of the expected trend.
Illustration of How to Use the Chande Momentum Oscillator
Traders can utilize the Chande momentum oscillator to spot bullish and bearish price divergence between the indicator and underlying security. A bearish divergence happens in the event that the underlying security is trending vertically and the Chande momentum oscillator is moving downwards. A bullish divergence happens on the off chance that the price is declining yet the oscillator is rising.
In the above model, Apple made another high in late August and one more new high in late September. All things being equal, the oscillator made a lower high in late September, affirming a bearish divergence. A trader who chooses to sell short can place a stop-loss order over the September swing high and take profits when the oscillator crosses below - 50.
The Chande Momentum Oscillator versus the Stochastic Oscillator
The Chande momentum oscillator processes relative strength outwardly through patterns that are like Wilder's RSI, with relative situating among highs and lows deciding the more drawn out term bullish or bearish outlook.
Stochastic estimations produce more musical waves, switching back and forth among overbought and oversold limits. This indicator generally uses a second "signal" line, in which crossovers higher and lower direct buying and selling opportunities.
- The Chande momentum oscillator is a technical indicator that involves momentum to distinguish relative strength or weakness in a market.
- Overbought-oversold indicators are less effective in emphatically trending markets.
- The picked time span incredibly influences signals created by the indicator.
- Pattern recognition frequently produces more dependable signals than absolute oscillator levels.