Today's article is all about the Chande momentum oscillator indicator.
This is the fourth article about the technical indicators. If this is a new topic for you, some concepts and definitions are disclosed in the first article of the series - Simple Moving Average.
As you can see, I've started with a description of all kinds of moving averages. And here we have a momentum indicator. But that's not because we run out of moving averages, but because our next moving average indicator is a variable moving average. It's based on the Chande momentum oscillator indicator, so I have to start from it.
It was invented by Tushar Chande.
Here is its idea - the price movement is calculated for a given number of periods n. The difference is taken for two adjacent candles, e.g., the close price of the last and next-to-last candles. If the difference is positive - the price goes up, it is added on to the total positive difference; if the difference is negative - the price goes down, it is added on to the total negative difference.
The value of the indicator is calculated as a fraction. The difference of the resulting positive and negative differences in the numerator and their sum multiplied by 100% is the denominator.
It's probably maybe written like this
This indicator has a range from -100 to +100. The security is deemed to be overbought when the momentum oscillator is above +50 and oversold below -50.
It's laid off on a separate scale, so the two following graphs are candles and, in fact, an indicator.
There is, however, a little problem with the fact that they have separate navigation. That's why you have to switch to the last values two times - first switch candles, then indicator, but such is our current level of technological development.