Chande momentum oscillator is a technical momentum indicator. It is created by calculating the difference between the sum of all recent gains and the sum of all recent losses and then dividing the result by the sum of all price movement over the period. This oscillator is also similar to other momentum indicators such as the Relative Strength Index and the Stochastic Oscillator because it is range bounded (+100 and -100). The chande momentum oscillator differs from other technical indicators like the RSI and MACD, because it uses up and down days in both the numerator and denominator.
The two different ways in which this oscillator can be used as a trading signal are as follows :
The first method is to purchase when the oscillator crosses above its MA line and to sell when the oscillator crosses below its MA line. The second is to measure overbought or oversold levels for a certain currency.
The Chande Momentum indicator is built using the sum over a certain period of price changes on up days, sum (high-low) up, and the sum over the same period of prices on down days, sum (high-low), down. An exponential this line’s moving average is afterwards overlaid upon the oscillator as a signal line. The oscillator needs two parameters: the period for the moving average and the period when the price ranges will be summarized.