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. To calculate the PPO, subtract the 26-period exponential moving average (EMA) from the 12-period EMA, and then divide this difference by the 26-period EMA. The result is then multiplied by 100. The indicator tells the trader where the short-term average is relative to the longer-term average.

Here is the PPO calculation:

{(12-day EMA – 26-day EMA) / 26-day EMA} x 100

BREAKING DOWN 'Percentage Price Oscillator - PPO'

The PPO and the moving average convergence divergence (MACD) are both momentum indicators that measure the difference between the 26-period and the 12-period exponential moving averages. The main difference between these indicators is that the MACD reports the absolute difference between the exponential moving averages, whereas the PPO expresses this difference as a percentage. This allows a trader to use the PPO indicator to compare stocks with different prices more easily. For example, regardless of the stock's price, a PPO result of 10 means the short-term average is 10% above the long-term average.

Example of Percentage Price Oscillator                                                                                             

Image depicting an example of the PPO indicator.

Comparing Securities

The PPO’s percentage values allow traders to use the indicator to compare different securities easily. This is particularly useful if the securities vary significantly in price. For example, A trader who is comparing Apple, which is trading at $160, and Amazon, which is trading at $1,460, could compare the indicator’s oscillating range for each stock to determine which one is more volatile. For instance, if the PPO’s range for Apple is between -3 and +3, and Amazon’s PPO range is between -2 and +3, it is evident that Apple is more volatile because it has a 6 point range compared to Amazon’s 5 point range. The PPO indicator is also useful for comparing momentum between securities. Traders simply need to look at which stock has the higher PPO value. 

Trading with the Percentage Price Oscillator

The PPO generates trading signals in the same way the MACD does. The indicator generates a buy signal when the PPO line crosses the trigger line from below to above, and a sell signal when PPO line crosses the trigger line from above to below. The trigger line is created by taking a 9-period moving average of the PPO line (see example above.)

Centerline crossovers also generate trading signals. Traders consider a move from below to above 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 use the PPO to look for technical divergence between the indicator and price. For example, If the price of a security makes a higher high, but the indicator makes a lower high, it may indicate the bullish momentum is subsiding. Conversely, if a security’s price makes a lower low, but the indicator makes a shallower low, it could suggest that the bears are losing their traction. (For further reading, see: How Do I use the Price Percentage Oscillator (PPO) to create a forex trading strategy?)

RELATED TERMS
  1. Exponential Moving Average - EMA

    A type of moving average that is similar to a simple moving average, ...
  2. Price Zone Oscillator

    The Price Zone Oscillator is a technical indicator that measures ...
  3. Ultimate Oscillator

    The Ultimate Oscillator is a technical indicator that was developed ...
  4. Oscillator

    A technical analysis tool that is banded between two extreme ...
  5. Stochastic Oscillator

    A technical momentum indicator that compares a security's closing ...
  6. Divergence

    When the price of an asset and an indicator, index or other related ...
Related Articles
  1. Investing

    The top technical indicators for commodity investing

    See how traders can use "the usual suspects" standard for trend trading when it comes to choosing indicators for commodities investing.
  2. Trading

    Measuring Stock Market Sentiment With Extreme Indicators

    Pay attention to how the exhaustion principle helps technical indicators signal trend reversals when abrupt value changes coincide with high trading volume.
  3. Trading

    Simple Vs. Exponential Moving Averages

    These technical indicators help investors to visualize trends by smoothing out price movements.
  4. Trading

    Trend trading: The 4 most common indicators

    Learn about the top indicators and tools trend traders use to establish when trends exist and find entry and exit points.
  5. Investing

    5 Stocks With Bullish MACD Crossovers for 2016 (COT, OCLR)

    Take a technical analysis look at five stocks that may be heading to the upside in 2016, based on a bullish MACD crossover buy signal.
  6. Trading

    This Indicator Should Always Be Part Of Your Strategy

    The relationship between price, 200-day EMA and its slope of generate useful patterns that assist in price prediction and trade management.
  7. Trading

    Do Adaptive Moving Averages Lead To Better Results?

    These complex indicators can help traders interpret trend changes, but are they too good to be true?
RELATED FAQS
  1. What are the main differences between Moving Average Convergence Divergence (MACD) ...

    Learn the differences between the moving average convergence divergence (MACD) and the relative strength index (RSI), and ... Read Answer >>
  2. How do you know where on the oscillator you should make a purchase or sale?

    Learn more about oscillator indicators, technical momentum measures that are used by traders to predict potential market ... Read Answer >>
  3. What are the main differences between Moving Average Convergence Divergence (MACD) ...

    Understand the exponential moving average, or EMA, and the moving average convergence divergence, or MACD, and their respective ... Read Answer >>
  4. How reliable is using the Moving Average Convergence Divergence (MACD) to create ...

    Find out why the moving average convergence divergence (MACD) oscillator is considered one of the simplest, most versatile ... Read Answer >>
  5. What are the most common momentum oscillators used in forex trading?

    Explore two frequently used momentum indicators in forex trading, the moving average convergence divergence, or MACD, and ... Read Answer >>
  6. What are the best technical indicators to complement the Stochastic Oscillator?

    Explore the function of the stochastic oscillator indicator, and discover other technical indicators traders use to complement ... Read Answer >>
Hot Definitions
  1. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  2. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  3. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  4. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  5. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
  6. Cash Conversion Cycle - CCC

    Cash conversion cycle (CCC) is a metric that expresses the length of time, in days, that it takes for a company to convert ...
Trading Center