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

    An exponential moving average - EMA is a type of moving average ...
  2. Price Zone Oscillator

    The Price Zone Oscillator plots a graph that shows whether or ...
  3. Oscillator

    A technical analysis tool that is banded between two extreme ...
  4. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used ...
  5. Divergence

    When the price of an asset and an indicator, index or other related ...
  6. Moving Average - MA

    A moving average (MA) is a technical analysis indicator that ...
Related Articles
  1. Trading

    Percentage Price Oscillator – An 'Elegant Indicator'

    The percentage price oscillator, which measures momentum, is among the more sophisticated tools in the technical analysis arsenal.
  2. Trading

    MACD And Stochastic: A Double-Cross Strategy

    The stochastic oscillator and the moving average convergence divergence (MACD) are two indicators that work well together.
  3. Insurance

    Preparing for Parenthood: Health Insurance

    Understanding health insurance means being better financially prepared for a baby.
  4. 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.
  5. Trading

    How to Use the Chaikin Oscillator

    What's the best way to reconcile increasing or decreasing volume with price fluctuations? Enter the Chaikin Oscillator.
  6. Trading

    Triple Screen Trading System - Part 3

    Learn about market wave, the second screen in this three-part system.
  7. Trading

    Tackling Technicals For Beginners

    Choosing the right indicators can be a daunting task for novice traders. It’s a much easier process when they focus their effects into five categories.
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. What is the Moving Average Convergence Divergence (MACD) formula and how is it calculated?

    Learn the formula for the moving average convergence divergence momentum indicator and find out how to calculate the MACD ... Read Answer >>
  3. 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 >>
  4. How do I use moving average to create a forex trading strategy?

    Learn a simple forex trading strategy that uses multiple moving averages (MAs) and is designed to create low-risk, high-reward ... Read Answer >>
  5. 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 >>
  6. What do the bracketed numbers following a technical indicator mean?

    In technical analysis, it is common to see a series of numbers following a given technical indicator, usually in brackets. ... Read Answer >>
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center