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 MA

Percentage Price Oscillator (PPO) is APO represented as percentage value:

PPO = (Fast Exponential MA - Slow Exponential MA) / Slow Exponential MA

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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