Calculate and Interpret the Percentage Price Oscillator (PPO)

The Percentage Price Oscillator or “PPO” is an indicator used by technical investors to measure momentum by demonstrating the relationship between two moving averages. Two inputs are required to calculate the PPO: a shorter-term and a longer-term exponential moving average (EMA). To perform the calculation, the longer term EMA is subtracted from the shorter-term EMA; that is result is then divided by the longer-term EMA. Like all technical analysis oscillators, the PPO is used to indicate overbought and oversold conditions. Typically, the PPO will fluctuate around zero with buy signals issued when the value rises above Zero and sell signals when the PPO falls below zero.

What is an Exponential Moving Average?

A Moving Average (MA) is a technical indicator that shows the average value of the price of a security over a given time period in order to identify levels of support and resistance and to measure momentum. An exponential moving average (EMA) is a type of moving average in which more weight is applied to the more recent data. An EMA, then, reacts more quickly to recent price changes than do simple (not weighted) moving averages.

Calculate the Percentage Price Oscillator

The formula for the percentage price oscillator can be written as:

PPO = (Shorter-Term EMA – Longer-Term EMA) / Longer-Term EMA

Technical traders will most often use short-term moving averages (such as the 9 day and 26 day) as these will provide shorter-tem price movement indications.

_______________________________________________________________

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

« What “Catch a Falling Knife” Can Mean to a Value Investor | Home | Identify a Double Top on a Stock Chart »