May 12, 2018 at 2:38 am #32
A price oscillator is an indicator based on the difference between two moving averages, expressed as a percentage or in absolute values. The Price Oscillator, expressed as a percentage, is called the Percentage Price Oscillator (PPO), and the Price Oscillator, expressed in absolute values, is called the Absolute Price Oscillator (ACO). The number of time periods can vary depending on the preferences of the user. For daily charts, longer moving averages may be preferred to filter out a part of the “market noise” associated with daily price movements. For weekly charts that are already filtered out, part of the “market noise”, shorter moving averages may be considered more appropriate. In addition, a subsequent moving average can be imposed to use it as an impulse line, just as it does in the MACD indicator.
Absolute Price Oscillator (APO)
The Absolute Price Oscillator (APO) is calculated by subtracting the longer moving average from the shorter moving average. For example:
10 – period exponential moving average (EMA) minus 30 – period exponential moving average (EMA)
The obtained values ??and form the oscillator line, which oscillates above and below zero, in accordance with the difference in moving averages . If the shorter moving average is above the longer moving average , the indicator will be positive. If the shorter moving average is below the longer moving average , the indicator will be negative.
The MACD indicator, which is calculated as the difference between two exponential moving averages , is essentially the equivalent of an APO . And if there is no APO indicator in the software used for graphical display of price data, the MACD indicator can be used instead.
Interest Price Oscillator (PPO)
The Interest Price Oscillator is calculated by subtracting the longer moving average from the shorter moving average and then the resulting result is divided by the value of the longer moving average. For example:
This formula shows the difference between the two moving averages as a percentage of the longer moving average.
Absolute or Percentage
The Percentage Price Oscillator (PPO) and the Absolute Price Oscillator (APO) deliver, practically, the same signals and have basically the same form. All midline intersections, as well as the intersections that occur when the shorter moving average crosses above or below the longer moving average, occur at the same time. However, since PPO is calculated on a percent basis, the shape of its lines may differ by minor, but important, nuances from the shape of the APO lines. Below is a graph of the index “Nasdaq Composite”, which illustrates some of these differences that may arise unexpectedly.
- The green circle shows that the PPO formed a lower high in December, while the APO formed a higher high.
- Later in December, APO continued to move higher, and PPO began to flatten out. (red arrows)
- In early January, PPO showed a lower low, which was one day earlier than the APO.
There are two main reasons to use the Percentage Price Oscillator instead of the Absolute Price Oscillator.
1. In the case of an Interest Price Oscillator, it is possible to compare the levels of the Price Oscillator between two market instruments. PPO + 5% means that the shorter moving average is 5% higher than the longer moving average. This value of interest can be compared to another market instrument, regardless of the price of the instrument. The Interest Price Oscillator (PPO) for SLB reached only 3% for its peaks, while the Nasdaq Composite Index rose above 7%.
2. The Percentage Price Oscillator better represents the ratio between the two moving averages. The difference between the two moving averages is shown relative to the shorter moving average. This allows you to compare values between time periods, regardless of the price of the market instrument. In the case of the Absolute Price Oscillator, the higher the price of a market instrument, the greater the extremes of the oscillator. With the Percentage Price Oscillator, the comparison of the “Amazon” stock after a certain time is possible, regardless of where the stock price is in the region of 10 or 100.
PPO is the histogram
Because the Price Oscillator and MACD are so similar, the MACD-histogram concept was applied to the PPO. The PPO histogram shows the difference between PPO and 9-day exponential moving average (EMA) from PPO. The graph is presented in the form of a histogram so that the intersections of the middle line and the divergence are easily identifiable. The same principles that apply to the MACD histogram are also applicable to the PPO histogram.
The intersection of the midline for the PPO histogram means the same as the moving average intersection for the PPO. If the PPO value is greater than the value of its 9-day EMA, the value on the PPO histogram will be positive. Conversely, if the PPO value is less than the value of its 9-day EMA, the value of the PPO histogram will be negative.
Further increase or decrease in the gap between PPO and its 9-day EMA will be reflected in the PPO-histogram. The sharp increases in the PPO histogram indicate that the PPO rises faster than its 9-day EMA and means that the bullish pulse is amplified. Sharp declines in the PPO histogram indicate that the PPO falls faster than its moving average and means that the bearish momentum is increasing.
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