The primary method of interpreting the CMO is looking for extreme overbought and oversold conditions. As a general rule, Mr. Chande quantifies an overbought level at +50 and the oversold level at -50. At +50, up-day momentum is three times the down-day momentum. Likewise, at -50, down-day momentum is three times the up-day momentum. These levels correspond to the 70/30 levels on the RSI indicator.

You could also establish overbought/oversold entry and exit rules by plotting a moving average trigger line on the CMO. For example, if you are using the default 20-period CMO, a 9-period moving average may serve as a good trigger line. Buy when the CMO crosses above the 9-period trigger line; sell when it crosses below The CMO is closely related to, yet unique from, other momentum oriented indicators such as Relative Strength Index Stochastic, Rate-of-Change, etc.

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