The Chande Forecast Oscillator (CFO) is a technical indicator that measures the difference between the current price of an asset and the price that is predicted by a linear regression.
The oscillator is plotted on a scale of 0 to 100, with values above 50 indicating that the price is above the predicted price, and values below 50 indicating that the price is below the predicted price.
The CFO was developed by Tushar Chande, a technical analyst and author. He introduced the indicator in his book, The New Technical Trader.
Chande designed the CFO to be a more reliable indicator than other oscillators, such as the Relative Strength Index (RSI). The CFO is less sensitive to noise and whipsaws, and it can be used to identify trend reversals more accurately.
The CFO is calculated using the following formula:
CFO = (Close - Linear Regression) / (Linear Regression) * 100
where:
- Close is the closing price of the asset
- Linear Regression is the predicted price of the asset, calculated using a linear regression of the past prices
The CFO can be used to identify overbought and oversold conditions. When the CFO is above 50, the market is considered to be overbought. This means that the price is too high and is likely to decline. When the CFO is below 50, the market is considered to be oversold. This means that the price is too low and is likely to rise.
The CFO can also be used to identify trend reversals. When the CFO crosses above 50, it indicates that a bullish trend may be underway. When the CFO crosses below 50, it indicates that a bearish trend may be underway.
The CFO is a versatile indicator that can be used to identify overbought and oversold conditions, trend reversals, and other trading signals.
However, it is important to remember that no single indicator is perfect. The CFO should be used in conjunction with other technical indicators and fundamental analysis to make trading decisions.
Here are some additional things to keep in mind when using the Chande Forecast Oscillator:
The length of the linear regression period can be adjusted to suit the trader’s preferences. A shorter period will make the oscillator more sensitive to changes in price, while a longer period will make it less sensitive.
The CFO can be used to identify trading signals in both trending and non-trending markets. However, it is more effective in trending markets.
The CFO should not be used as the sole basis for making trading decisions. It should be used in conjunction with other technical indicators and fundamental analysis.