Percentage Price Oscillator (PPO)

What Is the Percentage Price Oscillator (PPO)?

The percentage price oscillator (PPO) is a technical momentum indicator that shows the relationship between two moving averages in percentage terms. The moving averages are a 26-period and 12-period exponential moving average (EMA).

The PPO is utilized to compare asset performance and volatility, spot divergence that could lead to price reversals, create trade signals, and assist with affirming trend heading.

Formula and Calculation for the Percentage Price Oscillator (PPO)

Utilize the following formula to compute the relationship between two moving averages for a holding.
$\begin &\text = \frac {\text{12-period EMA}-\text{26-period EMA}}{\text{26-period EMA}}\times100\ \ &\text = \text{9-period EMA of PPO}\ &\text = \text - \text\ &\textbf\ &\text = \text \end$

1. Compute the 12-period EMA of the asset's price.
2. Compute the 26-period EMA of the asset's price.
3. Apply these to the PPO formula to get the current PPO value.
4. When there are somewhere around nine PPO values, produce the signal line by computing the nine-period EMA of the PPO.
5. To produce a histogram perusing, take the PPO value and deduct the current signal line value. The histogram is a discretionary visual representation of the distance between these two lines.

How the Percentage Price Oscillator (PPO) Works

The PPO is indistinguishable from the moving average convergence divergence (MACD) indicator, with the exception of the PPO measures percentage difference between two EMAs, while the MACD measures absolute (dollar) difference. A few traders favor the PPO in light of the fact that readings are comparable between

assets with various prices, while MACD readings are not comparable. For instance, no matter what the asset's price, a PPO consequence of 10 means the short-term average is 10% over the long-term average.

The PPO produces trade signals similarly the MACD does. The indicator creates a buy signal when the PPO line crosses over the signal line from below, and produces a sell signal when the PPO line crosses below the signal from a higher place. The signal line is made by taking a nine-period EMA of the PPO line. Signal line crossovers are utilized related to where the PPO is relative to zero/centerline.

At the point when the PPO is over zero that affirms a uptrend since the short-term EMA is over the longer-term EMA. On the other hand, when the PPO is below zero, the short-term EMA is below the longer-term EMA, which is an indication of a downtrend. A few traders like to possibly take signal line buy signals when the PPO is over zero, or the price shows an overall vertical direction. Likewise, when the PPO is below zero, they might disregard buy signals, or just take short-sell signals.

Centerline crossovers additionally create trading signals. Traders consider a move from below to over the centerline as bullish, and a move from above to below the centerline as bearish. The PPO crosses the centerline when the 12-period and 26-period moving average cross.

Traders can likewise utilize the PPO to search for technical divergence between the indicator and price. For instance, in the event that the price of an asset makes a higher high however the indicator makes a lower high, it might show the vertical momentum is dying down. On the other hand, assuming an asset's price makes a lower low however the indicator makes a higher low, it could recommend that the bears are losing their foothold and the price could head higher soon.

Contrasting Assets and the Percentage Price Oscillator (PPO)

The PPO's percentage value allows traders to utilize the indicator to compare various assets in terms of performance and volatility. This is especially valuable assuming the assets shift fundamentally in price.

For instance, a trader contrasting Apple and Amazon could compare the indicator's wavering reach for each stock to determine which one is more unpredictable.

Assuming the PPO's reach for Apple is among 3.25 and - 5.80 for the last year, and Amazon's PPO range is among 2.65 and - 4.5, it is obvious that Apple is more unstable in light of the fact that it has a 9.05 point range compared to Amazon's 7.15 point range. This is an exceptionally unpleasant comparison of volatility between the two assets. The indicator is just measuring and mirroring the distance between two moving averages, not real price movement.

The PPO indicator is likewise helpful for looking at momentum between assets. Traders just have to take a gander at which asset has a higher PPO value to see which has more momentum. For example, on the off chance that Apple has a PPO of three and Amazon has a PPO value of one, then, at that point, Apple has had later strength since its short-term EMA is further over the longer-term EMA.

The Percentage Price Oscillator (PPO) versus the Relative Strength Index (RSI)

The PPO measures the distance between a shorter and longer-term EMA. The relative strength index (RSI) is one more type of oscillator that measures recent price gains and losses.

The RSI is utilized to help survey overbought and oversold conditions, as well as spot divergences and affirm trends. The indicators are calculated and deciphered in an unexpected way, so they will each give different data to traders.

Limitations of the Percentage Price Oscillator (PPO)

The PPO is inclined to giving false crossover signals, both in terms of signal line crossovers and centerline crossovers. Expect the price is rising, however at that point moves sideways. The two EMAs will combine during the sideways period, possible bringing about a signal line crossover and possibly a centerline crossover. Yet the price hasn't really turned around or taken an alternate route, it just stopped. Traders utilizing the PPO must keep this as a top priority while utilizing the PPO to produce trade signals.

At least two crossovers might happen before a strong price move creates. Numerous crossovers without a huge price move are probably going to bring about various losing trades.

The indicator is likewise used to spot divergences, which might hint a price reversal. Yet divergence isn't a timing signal. It can last a long time, and will not necessarily bring about a price reversal.

The indicator is made out of the distance between two EMAs (the PPO), and an EMA of the PPO (signal line). There isn't anything intrinsically predictive in these calculations. They showing has happened, and not really what will occur from now on.

Highlights

• The PPO crossing the signal line is involved by certain traders as a trade signal. At the point when it crosses above from below that is a buy, and when it crosses below from over that is a sell.
• At the point when the PPO is below zero, the short-term average is below the longer-term average, which demonstrates a downtrend.
• At the point when the PPO is over zero that shows an uptrend, as the short-term EMA is over the longer-term EMA.
• The PPO commonly contains two lines: the PPO line, and the signal line. The signal line is an EMA of the PPO, so it moves slower than the PPO.