PPO — Percentage Price Oscillator

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Percentage Price Oscillator

Table of Contents

Percentage Price Oscillator

Introduction

The Percentage Price Oscillator (PPO) is a momentum oscillator that measures the difference between two moving averages as a percentage of the larger moving average. As with its cousin, MACD, the Percentage Price Oscillator is shown with a signal line, a histogram and a centerline. Signals are generated with signal line crossovers, centerline crossovers, and divergences. Because these signals are no different than those associated with MACD, this article will focus on a few differences between the two. First, PPO readings are not subject to the price level of the security. Second, PPO readings for different securities can be compared, even when there are large differences in the price. See the ChartSchool article on MACD for information on signals common to both MACD and PPO.

Calculation

While MACD measures the absolute difference between two moving averages, PPO makes this a relative value by dividing the difference by the slower moving average (26-day 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. The table below shows Intel (INTC) with values for the 12-day EMA, 26-day EMA, MACD and PPO. Intel is priced in the low 20s and MACD values range from -44 cents to +64 cents. PPO puts this in percentage terms with values ranging from -2.01 to +2.85. It is easier to compare levels over time with percentages. -2.01 is equivalent to -2.01%, while +2.85 is equivalent to +2.85%.

Standard PPO is based on the 12-day Exponential Moving Average (EMA) and the 26-day EMA, but these parameters can be changed according to investor or trader preferences. Closing prices are used to calculate the moving averages and, therefore, PPO signals should be measured against closing prices. A 9-day EMA of PPO is plotted as a signal line to identify upturns and downturns in the indicator.

Interpretation

As with MACD, the PPO reflects the convergence and divergence of two moving averages. PPO is positive when the shorter moving average is above the longer moving average. The indicator moves further into positive territory as the shorter moving average distances itself from the longer moving average. This reflects strong upside momentum. The PPO is negative when the shorter moving average is below the longer moving average. Negative readings grow when the shorter moving average distances itself from the longer moving average (goes further negative). This reflects strong downside momentum. The histogram represents the difference between PPO and its 9-day EMA, the signal line. The histogram is positive when PPO is above its 9-day EMA and negative when PPO is below its 9-day EMA. The PPO-Histogram can be used to anticipate signal line crossovers in the PPO. See the ChartSchool article on the MACD Histogram for signal details.

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MACD, PPO and Price

MACD levels are affected by the price of a security. A high-priced security will have higher or lower MACD values than a low-priced security, even if volatility is basically equal. This is because MACD is based on the absolute difference in the two moving averages. Chart 2 shows Google with MACD and PPO for comparative purposes. The 12-day EMA is around 495, the 26-day EMA is around 512 and the difference is -17 (double digits). Notice that Google’s MACD reached double digits on the upside and the downside, but the Percentage Price Oscillator ranged from +2.5 to -3.5. MACD values appear higher because Google is priced at a relatively high level. MACD for the Dow Industrials, which is above 10,000, hits triple digits on a regular basis. However, the PPO ranges from -2 to +2, which is a much more definable range.

Although the indicator lines look the same, there are often subtle differences between MACD and PPO. In the Google example, notice how the PPO broke below the February low, but MACD has yet to break its February low. The lower low in the PPO shows expanding downside momentum.

Large Price Changes

Because MACD is based on absolute levels, large price changes can affect MACD levels over an extended period of time. If a stock advances from 20 to 100, its MACD levels will be considerably smaller, closer to 20 than 100. The PPO solves this problem by showing MACD values in percentage terms. Chart 3 shows Baidu (BIDU) advancing from 25 to 75 over a 12-month period. MACD values around 25-30 are going to be generally smaller than MACD values around 70-80. Notice that MACD broke above its July and March highs, but the PPO did not break these corresponding highs. Also note that Baidu becomes overbought when the PPO exceeds +5.

Comparing Different Securities

Because the Percentage Price Oscillator (PPO) is a percentage version of MACD, its values can be compared against other securities. Dell (DELL) and Hewlett Packard (HPQ) are in the same industry group, but their stock prices are at different levels. As of late May 2020, DELL was trading in the high teens and HPQ was trading in the mid-40s. The absolute price level has nothing to do with fundamentals, but it does affect the level of MACD. HPQ will no doubt have a higher MACD than DELL. However, we can apply the Percentage Price Oscillator (PPO) to compare momentum. First, notice that the PPO for DELL ranges from -4 to +4 for an 8 point range). The PPO for HPQ ranges from -3 to +2 for a range of 5. Right off the bat, we can see that DELL is more volatile than HPQ because its PPO range is greater. Second, we can see that upside momentum for DELL was stronger than HPQ in March-April. The PPO for DELL advanced from negative territory and exceeded 4. The PPO for HPQ turned positive before the PPO for DELL, but did not exceed 1.6.

Conclusion

The Percentage Price Oscillator (PPO) generates the same signals as the MACD, but provides an added dimension as a percentage version of MACD. The PPO levels of the Dow Industrials (price

11000) can be compared against the PPO levels of IBM (price

122) because the PPO “levels” the playing field, so to speak. In addition, PPO levels in one security can be compared over extended periods of time, even if the price has doubled or tripled. This is not the case for the MACD. Despite its advantages, the PPO is still not the best oscillator to identify overbought or oversold conditions because movements are unlimited (in theory). Levels for RSI and the Stochastic Oscillator are limited, making them better suited to identifying overbought and oversold levels.

Using with SharpCharts

The PPO can be set as an indicator above, below or behind a security’s price plot. Once the indicator is chosen from the dropdown list, the default parameter setting appears (12,26,9). These parameters can be adjusted to increase or decrease sensitivity. A slower long moving average combined with a faster short moving average will increase sensitivity. The histogram can be removed by setting the signal line parameter to 1. This is helpful when displaying the PPO behind the price plot of a security. Users can even add back the signal line by applying a 9-day EMA to the PPO. Click “advanced options” to add the moving average as an overlay for an indicator. Click here for a live example of the PPO.

Suggested Scans

PPO Bullish Signal Line Cross

This scan reveals stocks that are trading above their 200-day moving average and have a bullish signal line crossover in the PPO. Notice that the PPO is required to be negative to ensure that this upturn occurs after a pullback. This scan is just meant as a starting point for further refinement.

PPO Bearish Signal Line Cross

This scan reveals stocks that are trading below their 200-day moving average and have a bearish signal line crossover in PPO. Notice that the PPO is required to be positive to ensure that this downturn occurs after a bounce. This scan is just meant as a starting point for further refinement.

For more details on the syntax to use for PPO scans, please see our Scan Syntax Reference in the Support Center.

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 used to compare asset performance and volatility, spot divergence which could lead to price reversals, generate trade signals, and help confirm trend direction. The PPO is identical to the moving average convergence divergence (MACD) indicator, except the PPO measures percentage difference between two EMAs, while the MACD measures absolute (dollar) difference. Some traders prefer the PPO because readings are comparable between assets with different prices, whereas MACD readings are not comparable.

Key Takeaways

  • The PPO typical contains two lines, the PPO line, and the signal line. The signal line is an EMA of PPO, so it moves slower than the PPO.
  • The PPO crossing the signal line is used by some traders as a trade signal. When it crosses above from below, that is a buy, when it crosses below from above that is a sell.
  • When the PPO is above zero that helps indicate an uptrend, as the short-term EMA is above the longer-term EMA.
  • When the PPO is below zero, the short-term average is below the longer-term average, which helps indicate a downtrend.

Formula and Calculation for PPO

Use the following formula to calculate the relationship between two moving averages for a holding.

  1. Calculate the 12-period EMA of the asset’s price.
  2. Calculate the 26-period EMA of the asset’s price.
  3. Apply these to the PPO formula to get the current PPO value.
  4. Once there are at least nine PPO values, generate the signal line by calculating the nine-period EMA of the PPO.
  5. To generate a histogram reading, subtract the current PPO value from the current signal line value. The histogram is an optional visual representation of the distance between these two lines.

What the Indicator Tells You

The PPO and the 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 EMAs, whereas the PPO expresses this difference as a percentage. This allows a trader to use the PPO indicator to compare assets with different prices more easily. For example, regardless of the asset’s price, a PPO result of 10 means the short-term average is 10% above the long-term average.

The PPO generates trade signals in the same way the MACD does. The indicator generates a buy signal when the PPO line crosses above the signal line from below, and a sell signal occurs when the PPO line crosses below the signal from above. The signal line is created by taking a nine-period EMA of the PPO line. Signal line crossovers are used in conjunction with where the PPO is relative to zero/centerline.

When the PPO is above zero, that helps confirm an uptrend since the short-term EMA is above the longer-term EMA. When the PPO is below zero, the short-term EMA is below the longer-term EMA, which is an indication of a downtrend. Some traders prefer to only take signal line buy signals when the PPO is above zero, or the price shows an overall upward trajectory. Similarly, when the PPO is below zero, they may ignore buy signals, and/or only take short-sell signals.

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 also use the PPO to look for technical divergence between the indicator and price. For example, if the price of an asset makes a higher high, but the indicator makes a lower high, it may indicate the upward momentum is subsiding. Conversely, if an asset’s price makes a lower low, but the indicator makes a higher low, it could suggest that the bears are losing their traction and the price could head higher soon.

Comparing Assets

The PPO’s percentage value allows traders to use the indicator to compare different assets in terms of performance and volatility. This is particularly useful if the assets vary significantly in price.

For example, A trader who is comparing Apple, which is trading at $175, and Amazon, which is trading at $1,650, could compare the indicator’s oscillating range for each stock to determine which one is more volatile.

If the PPO’s range for Apple is between 3.25 and -5.80 for the last year, and Amazon’s PPO range is between 2.65 and -4.5, it is evident that Apple is more volatile because it has a 9.05 point range compared to Amazon’s 7.15 point range. This is a very rough comparison of volatility between the two assets. The indicator is only measuring and reflecting the distance between two moving averages, not actual price movement.

The PPO indicator is also useful for comparing momentum between assets. Traders simply need to look at which asset has a higher PPO value to see which has more momentum. If Apple has a PPO of three and Amazon has a PPO value of one, when Apple has had more recent strength, since its short-term EMA is further above the longer-term EMA.

PPO and Relative Strength Index – RSI Differences

The PPO measures the distance between a shorter and longer-term EMA. The relative strength index is another type of oscillator that measures recent price gains and losses. The RSI is used to help assess overbought and oversold conditions, as well as spot divergences and confirm trends. The indicators are calculated and interpreted differently, therefore they will each provide different information to traders.

Limitations of PPO

The PPO is prone to providing false crossover signals, both in terms of signal line crossovers and centerline crossovers. Assume the price is rising, but then moves sideways. The two EMAs will converge during the sideways period, likely resulting in a signal line crossover and potentially a centerline crossover. Yet the price hasn’t actually reversed or changed direction, it just paused. Traders using the PPO must keep this in mind when using the PPO to generate trade signals.

Two or more crossovers may occur before a strong price move develops. Multiple crossovers without a significant price move are likely to result in multiple losing trades.

The indicator is also used to spot divergences, which may foreshadow a price reversal. Yet divergence is not a timing signal. It can last a long time, and won’t always result in a price reversal.

The indicator is composed of the distance between two EMAs (the PPO), and an EMA of the PPO (signal line). There is nothing inherently predictive in these calculations. They are showing what has occurred, and not necessarily what will happen in the future.

Процентный ценовой осциллятор | Percentage Price Oscillator, PPO

Процентный ценовой осцилляторангл. Percentage Price Oscillator (PPO), технический индикатор момента, показывающий отношение между двумя скользящими средними. Чтобы рассчитать процентный ценовой осциллятор, из 9-дневного экспоненциального скользящего среднего (EMA) необходимо вычесть 26-дневное экспоненциальное скользящее среднее, а затем разделить полученное значение на 26-дневное экспоненциальное скользящее среднее. В результате будет получен процент, который говорит трейдеру, насколько далеко краткосрочное среднее значение относительно долгосрочного среднего значения.

Формула расчета процентного ценового осциллятора выглядит следующим образом:

Процентный ценовой осциллятор и схождение расхождение скользящего среднего (MACD) являются и индикаторами момента, которые оценивают разницу между 26-дневным и 9-дневными экспоненциальными скользящими средними. Основное различие между этими индикаторами состоит в том, что MACD дает информацию только о расхождении между экспоненциальными скользящими средними. Процентный ценовой осциллятор выражает это расхождение в виде процента. Это позволяет трейдеру использовать индикатор PPO для сравнения акций с различными ценами. Например, независимо от цены акции, значение процентного ценового осциллятора равное 10 означает, что краткосрочное среднее значение на 10 % выше долгосрочного среднего значения.

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