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Percentage Price Oscillator (PPO) |
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Wednesday, 29 August 2007 |
Another momentum indicator that takes the difference between two exponential moving averages. The longer moving average is always subtracted from the shorter and then divided by the longer moving average (typically a 26 day EMA subtracted from a 9 day EMA.) This result is multiplied by 100 to obtain a percent.
The PPO is a nice indicator because it creates a better way to view two moving averages, regardless of the price. A PPO of 15% means that the shorter-term moving average is 15% above the longer-term moving average. This can be very useful to a Trader who is trying to compare two different stocks. The Trader can compare prices across a span of time more easily.
Typically, a longer moving average is used for shorter time periods. This helps to reduce visual volatility in the indicator to get a better representation of the PPO.
The PPO is much like the MACD: The PPO is in terms of percent, whereas the MACD is the simple difference. We suggest to use the PPO when you are trying to compare or assess, rather than analyze a trend.
And like most oscillators, the PPO can be used as a divergence indicator.
Notice that the PPO was rising from February to May while the price was decreasing during the same time period. This is positive divergence - a bullish signal. Rightly so, the price of Radyne increased substantially from May onward.
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