Chande Momentum Oscillator

Categories: Metrics, Trading, Charts

It's the device that keeps the Millenium Falcon from breaking up when it exits hyperspace.

The term can also refer to a concept in technical trading.

What is technical trading? It's the use of charts to make trading decisions. Basically, technical traders look at how a stock moves and use patterns to predict where the stock will go from there.

The Chande Momentum Oscillator was invented by a guy named Tushar Chande, who unveiled it in a 1994 book called The New Technical Trader.

Fundamentally, the equation computes a ratio between the amount of recent gains for a stock compared to its recent losses. So...you take all the days recently where a stock went up. You add up all those gains. Then you take all the days recently where the stock when down, and you add up all those losses. Then you subtract the losses from the gains, and divide all of that by the total movement (the gains plus the losses). The result gets multiplied by 100.

The equation looks like this ((Su – Sd) / (Su + Sd)) x 100 = CMO

The eventual answer will fall somewhere between +100 and -100. Closer to +100 indicates a more overbought situation (people have rushed into the stock too much and have pushed the price too high). A reading closer to -100 represents a more oversold condition.

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