Technical Analysis, Studies, Indicators:
Percentage Price Oscillator (PPO)
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There are two price oscillators used in
technical analysis: Absolute Price Oscillator (APO) and Percentage Price
Oscillator (PPO). Both of these indicators are based on the difference between
two price moving averages as absolute or percentage value respectively.
The formula for calculating of the APO is the same as formula that defines
MACD:
APO =
MACD = Fast Exponential MA - Slow Exponential MV
Percentage Price Oscillator (PPO) is APO
represented as percentage value:
PPO =
(Fast Exponential MA - Slow Exponential MV) / Slow Exponential MV
As an example of PPO(10,30) values where 10
is bar period of Fast MA and 30 is bar period of slow MA
- when PPO(10, 30) = 5% it tells us that
10-bar exponential moving average is 5% higher than the 30-bar exponential
moving average - analyzed stock moves up.
-
when PPO(10, 30) = 0% it tells us that 10-bar exponential moving average
crosses the 30-bar exponential moving average.
-
when PPO(10, 30) = -5% it tells us that 10-bar exponential moving average
is 5% lower than the 30-bar exponential moving average - analyzed stock
moves down.
Basically, the PPO is a percentage representation of MACD and all principles
of technical analysis used with MACD could be applied to PPO and PPO would
generate signals similar to the signals generated by MACD. As a result PPO
is widely used with PPO-histogram which are analyzed in the same way as
MACD
histogram.
The same as with MACD the PVO could be used to generate signals from:
- Divergence
-
Moving Average Crossover
-
Centerline Crossover
The advantage of the PPO over MACD is that because PPO is percentage based
it allows comparing the PPO of various securities.
Chart 1:
S&P 500 index - Percentage Price Oscillator (PPO) and MACD.
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