✔️ Information reviewed and updated in December 2023 by Eduardo López
Indicators are used to determine the speed with which the price of an asset can change in the market. The Chande Inertia Oscillator is one of the technical indicators created with the purpose of detecting variations of upward or downward trends in the world of trading.
Many of them are complementary to other essential indicators and tools that support cryptocurrency trading. They are also used to find points of high probability where the price can change direction. They measure the strength that exists between current price movements relative to previous periods.
➡Definition of Chande's Inertial Oscillator✨
This indicator was invented by Tushar Chande, who introduced it in his book "The New Technical Trader" in 1994. This oscillator is similar to other indicators, such as the Stochastic Oscillator and the Relative Strength Index.
The Chande Inertia Oscillator measures momentum in bullish and bearish periods, reaching oversold and overbought levels with high frequency. The indicator is between +100 and -100.
Being a momentum oscillator, it also belongs to the same group as indicators such as ROC, RSI, Stochastic Oscillator, Williams% R, and CCI. All are designed to measure the rate of change in price series.
➡What is it for? ✨
Traders use the Chande Inertia Oscillator to find positive and negative divergences between the indicator and the asset price.
A negative divergence arises if the underlying price is trending up, thus causing the Chande Oscillator to move lower. On the contrary, a positive divergence occurs when the price decreases, and in this case the Oscillator increases.
That is to say, a bullish divergence is obtained when the price curve reaches a new low, as long as the indicator continues to remain above its minimum. And a bearish divergence is obtained when the price curve reaches a new high, while the indicator remains below its maximum.
In addition, the indicator can be used as a confirmation signal when it crosses above or below 0.
➡How is it obtained? ✨
The Chande Oscillator of Inertia is obtained by calculating the difference between the sum of all new gains and the sum of all new losses in the market that was analyzed, and dividing that result by the sum of all the price movements of that period.
When the indicator is greater than +50 there is an overbought, and when the indicator is less than -50 there is an oversold. It can be smoothed out by a moving average, as in the case of an RSI. It is possible to use this indicator with two moving averages that will be the entry and exit points of the intersections.
Otherwise, it is possible to intervene on this indicator by drawing support and resistance lines. Strength can also be measured using the Chande Oscillator, the larger the oscillator, the stronger the trend and vice versa.