What Is The Percentage Price Oscillator & How To Trade With It

PERCENTAGE PRICE OSCILLATOR EXPLAINED

The Percentage Price Oscillator trading indicator is based on two moving averages and is designed as an oscillator. The Percentage Price Oscillator indicator is calculated as the difference between fast and slow EMA divided by fast EMA.

What is the Percentage Price Oscillator?

The Percentage Price Oscillator indicator has several advantages:

  • It can show the divergence signals between prices and the value of the oscillator.
  • It can identify price extremes, its movements are dynamic.

Derived from the MACD pointer with its percentage-based, the Percentage Price Oscillator (PPO) uses a PPO line that is plotted by calculating the percentage difference between a volatile EMA, the close price, and other extended-term EMA the close price. Such a calculation allows you to have EMA implement a flag line by implementing it on the line and a histogram to show the difference between the signal line and PPO line.

MACD needs development because it is helpless to use MACD between different stocks based on price. However, PPO is based on the percentage, so it is legitimate to use it when searching for different stocks, neglecting the price level.

If the volatile normal is higher than the long-distance number, the PPO line will have a positive value. However, it will be negative if the condition is reversed. This leaves us with the result that you can have unique EMAs whenever you go from the 0 value.

PPO is known for its ability to identify the PPO and monitor hybrids between the plotted line and the original signal line to identify an end target and to put reversals and turns. The PPO’s two powerful tools are the 0 line to determine whether the long-distance or volatile number is normal and the behavior of PPO line along with the signal line.

percentage price oscillator on chart
percentage price oscillator on chart

PPO calculation

PPO line: (12-day EMA – 26-day EMA) / 26-day EMA * 100 (blue)

Signal line: 9 days EMA from PPO line (red)

How to use the Percentage Price Oscillator?

The Percentage Price Oscillator trading indicator can be successfully used in trend trading strategies for finding price pivot points and determining places for opening positions. Using the indicator, in general, is similar to using MACD. The main signals are the intersection of the zero-line, divergence, and overbought/oversold zones.

Zero-line intersection

When crossing the zero line from bottom to top, a buy signal can appear, when crossing from top to bottom – a sell signal may appear. Moreover, the more amplitude the indicator changes before the intersection, the better. One use case is to build a position in trend transactions.

Zero line intersection in percentage price oscillator
Zero line intersection in percentage price oscillator

Divergence

When the next high is higher than the previous one on the price chart, and the opposite situation is observed on the oscillator, a divergence signal (divergence) appears. Such a signal can be sought near the top of the uptrend, and it may signal a reversal trade.

A similar situation can be observed near the low of the downtrend: the next minimum is lower than the previous one on the price chart, and on the indicator, the lows are rising.

Divergence in percentage price oscillator
Divergence in percentage price oscillator

Oversold and Overbought Zones

Zones are marked on the chart independently and are selected based on the timeframe on which transactions are opened. The deal is entered when the oscillator leaves the zone, and the exit when the opposite signal appears. It is also possible to fix part of the position if, after the signal, the indicator crosses the zero line, but does not go further and returns. Stop-loss can be set at the nearest price extreme.

Overbought-oversold in percentage price oscillator
Overbought-oversold in percentage price oscillator

In addition to using the indicator as to the main analysis tool, it can be more effective to combine it with other technical analysis indicators, such as moving averages, Envelopes, Alligator, AMA, and other trend trading tools.

Percentage Price Oscillator trading strategy

We are going to discuss the PPO trading strategy based on zero-line intersection as this is one of the most commonly occurring trading signals on the chart.

Percentage Price Oscillator buy strategy

  • The PPO line should move above the zero-line.
  • Wait for the bullish candle to appear and close before entry.
  • Place the stop-loss slightly below the swing low.
  • We could exit when the PPO line goes back below the zero-line.
percentage price oscillator buy setup
percentage price oscillator buy setup

Percentage Price Oscillator sell strategy

  • The PPO line should move below the zero-line.
  • Wait for the bearish candle to appear and close before entry.
  • Place the stop-loss slightly above the swing low.
  • We could exit when the PPO line goes back above the zero-line.
percentage price oscillator sell setup
percentage price oscillator sell setup

Percentage Price Oscillator conclusion

The Percentage Price Oscillator indicator can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy. The Percentage Price Oscillator is similar to the MACD oscillator.

I would prefer to use the majority of technical indicators such as the Percentage Price Oscillator indicator on the 1-hour charts and above. I tend to find that these charts contain less market noise than the lower time frames and thus give more reliable signals for my forex trading strategies. This also means that I spend less time staring at charts and can also set alert notifications to let me know when price has reached certain levels or a particular indicator value has been reached.

The Percentage Price Oscillator indicator is just one indicator amongst thousands. I would not build a trading system alone, but rather combine with other technical indicators such as moving averages, Parabolic SAR, Stochastic Oscillator, RSI, ADX and price action analysis.

Of course, every trading system will generate false signals which is why money management is so important. I would personally be implementing sensible money management and only take traders that give me a favorable risk to reward ratio, ideally of at least 1:3. This means that one losing trade does not wipe out consecutive winners.

The methods of implementing the Percentage Price Oscillator indicator into a trading strategy that are outlined within this article are just ideas. I would always ensure that I have good money management, trading discipline and a trading plan when using any forex strategy.

Furthermore, I would combine multiple technical analysis, fundamental analysis, price action analysis and sentiment analysis to filter all entries. You should trade forex in a way that suits your own individual style, needs and goals.

If you would like to practice trading with the Percentage Price Oscillator indicator, you can open an account with a forex broker and download a trading platform. If you are looking for a forex broker, you may wish to view my best forex brokers for some inspiration.

Happy trading!