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I have been trading with a system that gives signals based in part on Welles
Wilder's Relative Strength Index (RSI). I have also been carrying along a
plot of the Chande Momentum Oscillator (CMO) with my charts, but, I wasn't
sure why. The CMO is very closely related to the RSI and I wasn't sure that
it was giving me any additional information. I have gained a new insight
recently and thought it might be of interest to the list.
The CMO seems to show divergences more clearly than the RSI. For example, on
a daily plot of the S&P 500, a plot of the RSI does not show momentum
diverging from price. That is, the recent higher high in price was
accompanied by a higher high in the RSI. In contrast, the CMO very clearly
shows a lower high associated with the recent higher high in price. I have
been using 20 days for the periods for both the RSI and the CMO. In addition
to the S&P 500 index, I have found this pattern where the CMO shows a
divergence and the RSI does not, or does not show it as clearly, on a number
of securities in the last few days.
I hope this is useful.
Dan
Pocatello, ID USA
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