The Percentage Price Oscillator trading indicator is based on two moving averages and is designed as an oscillator. The Percentage Price Oscillator indicator is calculated as the difference between fast and slow EMA divided by fast EMA. PPO is simply the MACD value divided by the longer moving average. The result is multiplied by 100 to move the decimal place two spots.
What is the Percentage Price Oscillator?
The Percentage Price Oscillator indicator has several advantages:
- It can show the divergence signals between prices and the value of the oscillator.
- It can identify price extremes, its movements are dynamic.
Derived from the MACD pointer with its percentage-based, the Percentage Price Oscillator (PPO) uses a PPO line that is plotted by calculating the percentage difference between a volatile EMA, the close price, and other extended-term EMA the close price. Such a calculation allows you to have EMA implement a flag line by implementing it on the line and a histogram to show the difference between the signal line and PPO line.
MACD needs development because it is helpless to use MACD between different stocks based on price. However, PPO is based on the percentage, so it is legitimate to use it when searching for different stocks, neglecting the price level.
If the volatile normal is higher than the long-distance number, the PPO line will have a positive value. However, it will be negative if the condition is reversed. This leaves us with the result that you can have unique EMAs whenever you go from the 0 value.
PPO is known for its ability to identify the PPO and monitor hybrids between the plotted line and the original signal line to identify an end target and to put reversals and turns. The PPO’s two powerful tools are the 0 line to determine whether the long-distance or volatile number is normal and the behavior of PPO line along with the signal line.
PPO calculation
PPO line: (12-day EMA – 26-day EMA) / 26-day EMA * 100 (blue)
Signal line: 9 days EMA from PPO line (red)
How to use the Percentage Price Oscillator?
The Percentage Price Oscillator trading indicator can be successfully used in trend trading strategies for finding price pivot points and determining places for opening positions. Using the indicator, in general, is similar to using MACD. The main signals are the intersection of the zero-line, divergence, and overbought/oversold zones.
Zero-line intersection
When crossing the zero line from bottom to top, a buy signal can appear, when crossing from top to bottom – a sell signal may appear. Moreover, the more amplitude the indicator changes before the intersection, the better. One use case is to build a position in trend transactions.
Divergence
When the next high is higher than the previous one on the price chart, and the opposite situation is observed on the oscillator, a divergence signal (divergence) appears. Such a signal can be sought near the top of the uptrend, and it may signal a reversal trade.
A similar situation can be observed near the low of the downtrend: the next minimum is lower than the previous one on the price chart, and on the indicator, the lows are rising.
Oversold and Overbought Zones
Zones are marked on the chart independently and are selected based on the timeframe on which transactions are opened. The deal is entered when the oscillator leaves the zone, and the exit when the opposite signal appears. It is also possible to fix part of the position if, after the signal, the indicator crosses the zero line, but does not go further and returns. Stop-loss can be set at the nearest price extreme.
In addition to using the indicator as to the main analysis tool, it can be more effective to combine it with other technical analysis indicators, such as moving averages, Envelopes, Alligator, AMA, and other trend trading tools.
Percentage Price Oscillator trading strategy
To read the price oscillator on a chart, you need to draw the two moving averages required for this tool: one short-term average and one long-term average. Then, you need to calculate the difference between the two moving averages to find oversold and overbought signals.
We are going to discuss the PPO trading strategy based on zero-line intersection as this is one of the most commonly occurring trading signals on the chart.
Percentage Price Oscillator buy strategy
- The PPO line should move above the zero-line.
- Wait for the bullish candle to appear and close before entry.
- Place the stop-loss slightly below the swing low.
- We could exit when the PPO line goes back below the zero-line.
Percentage Price Oscillator sell strategy
- The PPO line should move below the zero-line.
- Wait for the bearish candle to appear and close before entry.
- Place the stop-loss slightly above the swing low.
- We could exit when the PPO line goes back above the zero-line.
Percentage Price Oscillator conclusion
The Percentage Price Oscillator indicator can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. The Percentage Price Oscillator is similar to the MACD oscillator. Arguable, PPO is a better indicator than the MACD. The Percentage Price Oscillator measures percentage movements, while MACD measures absolute movements. Since stocks vary in price, MACD readings can’t be used to compare one asset to another.
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