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PPO

Percentage Price Oscillator (PPO) is a technical indicator similar to MACD, but expressing the difference between two exponential moving averages as a percentage rather than in absolute values.

To use the indicator, you need to use the PercentagePriceOscillator class.

Description

The Percentage Price Oscillator (PPO) is a variation of the more well-known MACD (Moving Average Convergence Divergence) indicator. The main difference is that PPO expresses the difference between two exponential moving averages as a percentage, rather than in absolute units. This makes PPO particularly useful when comparing different instruments with varying price levels or analyzing a single instrument over a long period when its price has changed significantly.

PPO consists of three components:

  1. PPO Line - difference between fast and slow EMA, expressed as a percentage
  2. Signal Line - EMA of the PPO line
  3. Histogram - difference between the PPO line and signal line

The PPO indicator oscillates around the zero line, where positive values indicate a bullish market sentiment, and negative values indicate a bearish sentiment. The magnitude of deviation from zero reflects the strength of the current trend.

Parameters

The indicator has the following parameters:

  • ShortPeriod - period for calculating short EMA (default value: 12)
  • LongPeriod - period for calculating long EMA (default value: 26)

Calculation

Percentage Price Oscillator calculation involves the following steps:

  1. Calculate short and long exponential moving averages:

    Short EMA = EMA(Price, ShortPeriod)
Long EMA = EMA(Price, LongPeriod)

  2. Calculate PPO line as a percentage difference between short and long EMA:

    PPO Line = ((Short EMA - Long EMA) / Long EMA) * 100

  3. Calculate signal line (typically 9-period EMA of PPO line):

    Signal Line = EMA(PPO Line, 9)

  4. Calculate histogram:

    Histogram = PPO Line - Signal Line

Where:

  • Price - price (usually closing price)
  • EMA - exponential moving average
  • ShortPeriod - period for short EMA
  • LongPeriod - period for long EMA

Interpretation

The Percentage Price Oscillator can be interpreted as follows:

  1. Zero Line Crossovers:

    • PPO line crossing the zero line from bottom to top can be viewed as a bullish signal
    • PPO line crossing the zero line from top to bottom can be viewed as a bearish signal

  2. Signal Line Crossovers:

    • PPO line crossing the signal line from bottom to top can be viewed as a bullish signal
    • PPO line crossing the signal line from top to bottom can be viewed as a bearish signal

  3. Divergences:

    • Bullish Divergence: price forms a new low, while PPO forms a higher low
    • Bearish Divergence: price forms a new high, while PPO forms a lower high

  4. Overbought/Oversold:

    • Extremely high positive PPO values may indicate market overbought conditions
    • Extremely low negative PPO values may indicate market oversold conditions

  5. Histogram Analysis:

    • Histogram expansion indicates strengthening of the current trend
    • Histogram contraction indicates weakening of the current trend
    • Change in histogram color (or sign) indicates a change in short-term momentum

  6. Instrument Comparison:

    • Unlike MACD, PPO can be used for direct comparison of different instruments
    • Higher PPO values for one instrument compared to another may indicate stronger relative momentum

  7. Signal Filtering:

    • Signal line crossover signals are more reliable when PPO is in line with the main trend
    • For example, bullish signals are more reliable when PPO is positive, and bearish signals are more reliable when PPO is negative

indicator_percentage_price_oscillator

See Also

MACD EMA PercentageVolumeOscillator TRIX

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