Chande Momentum Oscillator Trading Strategy – Setup, Rules, Python Backtest

There are countless technical indicators that traders look at. Among the most popular that try to gauge momentum are the RSI and the stochastic indicator. However, today, we will learn about one that is not so well-known: Chande momentum oscillator (trading strategy).

The Chande momentum oscillator is a technical indicator that measures momentum through the daily value change in the security. But the question arises: Can a profitable strategy be developed using it?

In this article, we are going to look at what the Chande momentum oscillator is, how to calculate it, and backtest a trading strategy using Python to see whether it is profitable or not.

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What is the Chande Momentum Oscillator?

The Chande momentum oscillator is a technical indicator similar to the RSI and stochastic indicator, introduced by Tushar Chande in his 1994 book The New Technical Trader. It measures momentum in both the up days and down days.

The indicator oscillates between +100 and -100, and triggers oversold signals when under -50 and overbought signals when over +50. It is also possible to add a moving average to the indicator to act as a signal line.

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How to Calculate The Chande Momentum Oscillator

The Chande momentum oscillator is pretty easy to calculate. Here is a step-by-step guide to how to do it:

Chande Momentum Oscillator = ((UP – DOWN) / (UP + DOWN)) * 100

1. Determine the change between the closing price of the current period(i) and the preceding one(i-1). 
2. When the change is a positive value, add it to the cumulative total of up days (UP) within the designated time frame. 
3. Conversely, if the change is negative, include its absolute value(positive) in the cumulative total of down days (DOWN) over the specified interval. 
4. To compute the Chande Momentum over the prescribed period, calculate the difference between UP and DOWN and divide it by the combined overall movement (UP + DOWN).
5. The result is expressed as a percentage, so multiply it by 100.

Chande Momentum Oscillator – trading rules

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