What Is the Chande Momentum Oscillator?

The Chande momentum oscillator is a technical momentum indicator introduced 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 then divides the result by the sum of all price💯 movements over t🍨he same period.

The Formula for the Chande Momentum Oscillator

 $\begin{aligned} &\text{Chande Momentum Oscillator}=\frac{sH - sL}{sH + sL}\times 100\\ &\textbf{where:}\\ &sH=\text{the sum of higher closes over N periods}\\ &sL=\text{the sum of lower closes of N periods}\\ \end{aligned}$​Chande Momentum Oscillator=sH+sLsH−sL​×100where:sH=the sum of higher🎃 closes over N periodssL=the sum of lowe𓆏r closes&🔴nbsp;of N periods​

How to Calculate the Chande Momentum Oscillator

1. Calculate the sum of higher closes over N periods.
2. Calculate the sum of lower closes over N periods.
3. Subtract the sum of lower closes over N periods from the sum of higher closes over N periods.
4. Add the sum of lower closes over N periods to the sum of higher closes over N periods.
5. Divide step 4 from 3 and multiply by 100.
6. Plot the result.

Understanding the Chande Momentum Oscillator

The Chande oscillator is similar to other momentum indicators such as Wilder’s 澳洲幸运5官方开奖结果体彩网:relative strength index (RSI) and the 澳洲幸运5官方开奖结果体彩网:stochastic oscillator. It measures momentum on both up and down days and does not smooth results, triggering more frequent oversold and overbought penetrations. The indicator oscillඣates beไtween +100 and -100.

Chande Momentum Oscillator Interpretation

A security is deemed to be overbought when the Chande momentum oscillator is above +50 and oversold when it is below -50. Many technical traders add a 10-period 澳洲幸运5官方开奖结果体彩网:moving average to this oscillator to act as a 澳洲幸运5官方开奖结果体彩网:signal line. The oscillator generates a bullish si𒐪gnal when it crosses above the moving average and a bearish signal when it drops below the moving average.

The oscillator can be used as a confirmation signal when it crosses above or below the 0 line. For example, if the 50-day moving average crosses above the 200-day moving average (澳洲幸运5官方开奖结果体彩网:golden cross), a buy signal is co𝓡nfirmed when the Chande momentum osci💧llator crosses above 0, predicting prices are headed higher.

Trend strength can also be measured using the Chande momentum oscillato🔴r. In this methodology, the oscillator's value denotes the strength or weakness of the ex💙pected trend. 

Examp💃le of How to Use the Chande Momentum Oscillator

Traders can use the Chande momentum oscill🐼ator to spot bullish and bearish price divergence between the indicator and underlying security. A bearish divergence occurs if the underlying security is trending upward and the Chande momentum oscillator is moving downwards. A bullish divergence occurs if the price is declining but the oscillator is rising.

In the above example, Apple made a new high in late August and another new high in late September. Instead, the oscillator made a lower high in late September, confirming a bearish divergence. A trader who decides to sell short can place a 澳洲幸运5官方开奖结果体彩网:stop-loss order above the September swing high and take profits when the oscillator𒐪 crosses below -50.

🌟The Chande Momentum Oscillator vs. t✱he Stochastic Oscillator

The Chande momentum oscillator computes relative strength visually through patterns that are similar to Wilder’s RSI, with relative positioning between highs and lows determining the longer-term bullish or bearish outlook.

Stochastic calculations generate more rhythmic waves, alternating between overbought and oveไrsold extremes. This indicator always utilizes a second “signal” line, in which crossovers higher and lower dictate buying and selling opportunities.