Cryptocurrency traders typically use momentum indicators to analyse the speed and strength of price movements. These indicators answer the question, ‘how quickly is the price changing?’ There are several popular momentum oscillators, including the Commodity Channel Index, Rate of Change, and On-Balance Volume. If you are a fan of momentum oscillators, it is essential to be familiar with the Chande Momentum Oscillator. It is considered one of the best options available for crypto trading analysis. Let’s learn more about it.
The Chande Momentum Oscillator (CMO) is a popular technical indicator used in crypto trading to measure the momentum of a crypto asset. It helps crypto traders identify potential trends or reversals, aiding decision-making in buying or selling.
The Chande Momentum Oscillator is indeed named after its creator, Mr. Tushar Chande, a Canadian mathematician and experienced trader with over 30 years of industry knowledge, who is known for inventing certain popular trading indicators like Aroon, StochRSI and VIDYA. The technical indicator was initially introduced in his 1994 book “The New Technical Trader – Boost Your Profits by Plugging into The Latest Indicators.” Like Mr. Chande’s other indicators, this indicator also established its unique space within a short span of time.
Calculating the Chande Momentum Oscillator may appear a bit complex. But if you can grasp the concept, it would be easy to learn the formula.
| Chande Momentum Oscillator = [(Sum of Upward Changes) – (Sum of Downward Changes)] / [(Sum of Upward Changes) + (Sum of Downward Changes)] |
The CMO calculates the difference between the sum of upward price changes and the sum of downward price changes over a chosen time. It then divides this difference by the total changes.
This ratio is expressed as a percentage. So, the CMO result is multiplied by 100. The value of the CMO can range from -100 to +100.
The top signals that you can get from the Chande Momentum Oscillator indicator are:
CMO readings above +50 can signal overbought conditions, suggesting a potential reversal or correction. Readings below -50 can indicate oversold conditions, hinting at a possible upward price move.
When the CMO line crosses above zero, it may indicate a shift from bearish to bullish momentum. Conversely, when it crosses below zero, it can signify a change from bullish to bearish momentum.
If CMO moves in the opposite direction of the price trend, it may suggest a potential trend reversal. For example, if the price is rising, but CMO is falling, it might indicate a weakening trend.
Extreme CMO values, significantly above or below +50 and -50, can imply strong momentum. Be cautious, as extreme readings may precede reversals.
Also read: VWAP Explained: Your Key to Successful Crypto Trading
The Chande Momentum Oscillator is an effective tool every crypto trader can explore for better trading decisions. It can help crypto traders to understand market momentum. Invested by Mr. Tushar Chande, it is used to identify important trading signals like overbought or oversold, or reverals. Remember, while CMO can provide valuable insights, it is essential to consider other factors and use risk management strategies to trade wisely in the dynamic crypto market.
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