Named by Tushar Chande, the CMO was designed to directly measure momentum by using data for both up and down days (closing prices experiencing gains and losses respectively) in the numerator. The oscillator is used to measure overbuying/overselling and to indicate purchase or selling levels depending on the crosses above or below its moving average line.

where,

sum1 = sum of the difference between current and previous closes on up days, for a specified period

sum2 = sum of the difference between current and previous closes on down days, for a specific period

High CMO levels indicate a strong trend. Hence for values above +50 there is indication that the currency pair or security is overbought. On the contrary for values below -50 there is indication that the currency pair or security is oversold. It is usual for technical analysts to add a 9-period moving average to the CMO to act as a bullish or bearish signal depending on the crosses above or below the moving average line, respectively.