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Percentage Price Oscillator (PPO)

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The Price Oscillator is an indicator based on the difference between two moving averages, and is expressed as either a percentage or in absolute terms. The number of time periods can vary depending on user preference. For daily data, longer moving averages might be preferred to filter out some of the randomness associated with daily prices. For weekly data, which will have already filtered out some of the randomness, shorter moving averages may be deemed more appropriate. In addition, a moving average of the ensuing plot can be overlaid to act as a trigger line, much like is done with MACD.

There are two main reasons for using the PPO.

  • With the Percentage Price Oscillator, it is possible to compare Price Oscillator levels from one symbol to the next. A PPO reading of +5% means that the shorter moving average is 5% higher than the longer moving average. This percentage reading is comparable against another symbol, regardless of the price of the commodity.
  • The Percentage Price Oscillator is a better representation of the two moving averages relative to each other. The difference between the two moving averages is shown in relation to the shorter moving average. This allows for comparisons across time periods, regardless of the price of the commodity.

Calculation

The Percentage Price Oscillator is found by subtracting the longer moving average from the shorter moving average and then dividing the result by the longer moving average. For example:

[(10-period EMA minus 30-period EMA) divided by the 30-period EMA]

This formula displays the difference between the two moving averages as a percentage of the longer moving average.

PPO-Histogram

Because the Price Oscillator and MACD are so similar, the concept of the MACD-Histogram has been applied to the PPO. The PPO-Histogram shows the difference between the PPO and the 9-day EMA of the PPO. The plot is presented as a histogram so that centerline crossovers and divergences are easily identifiable. The same principles that apply to the MACD-Histogram are also applicable to the PPO-Histogram.

A centerline crossover for the PPO-Histogram is the same as a moving average crossover for the PPO. If the value of the PPO is larger than the value of its 9-day EMA, then the value on the PPO-Histogram will be positive. Conversely, if the value of the PPO is less than its 9-day EMA, then the value of the PPO-Histogram will be negative.

Further increases or decreases in the gap between the PPO and its 9-day EMA will be reflected in the PPO-Histogram. Sharp increases in the PPO-Histogram indicate that the PPO is rising faster than its 9-day EMA -- bullish momentum is strengthening. Sharp declines in the PPO-Histogram indicate that the PPO is falling faster than its moving average -- bearish momentum is increasing.

Parameters:

  • Period (12) - the number of bars, or period, used to calculate the first EMA.
  • Period (26) - the number of bars, or period, used to calculate the second EMA.
  • Period (9) - the number of bars, or period, used to calculate the signal line.

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