Price Oscillator

Definition:

The Price Oscillator (also called the "Percentage Price Oscillator" – PPO) is designed to highlight the overall price trend and is displayed on the chart as a histogram. The PPO is calculated similar to the Moving Average indicator and is calculated by averaging two moving averages.

Background:

The normal filter setting is a 10 and 21 period simple moving average to determine its histogram.

Practical Use:

Traders can use the Price Oscillator a number of ways. The most basic is to go long when the Price Oscillator rises from below zero to above zero and/or sell/short a security when the oscillator goes back below zero. Some traders use the PPO to help identify the strength of a particular trend. The more extended the histogram reading is from zero, the more powerful the trend has become. Traders will also us this oscillator to help confirm the end of a particular trend. Identifying a divergence between the histogram and price action can signal a change in trend.

The signals provided by Price oscillator are typically the most meaningful when the price and volume of the chart being analyzed have also set up a bullish or bearish pattern. Using the Price Oscillator for additional confirmation of what has already been "read" in the chart can be a powerful addition to the assessment tools used by a technical analyst.