PO - Price Oscillator
Absolute Price Oscillator (APO) is the difference between two moving averages of different time periods.
APO = Fast Moving Average – Slow Moving Average
PPO - Percentage Price Oscillator
Percentage Price Oscillator shows the relationship between two moving averages in percentage terms.
PPO = (Fast Moving Average – Slow Moving Average) / Slow Moving Average * 100
Fast Moving average = 12 period
Slow Moving average = 26 period
Moving average type = Exponential Moving Average(EMA)
PPO is similar to Moving Average Convergence Divergence (MACD) indicator, except that MACD measures absolute difference between two moving averages while PPO measures percentage difference. Hence, PPO enables the traders to compare instruments with different prices while MACD readings are not comparable.
Signal Line = 9 Period EMA of PPO
PPO Histogram = PPO – Signal Line
A buy signal is generated when the Price Oscillator rises above zero, and a sell signal when it falls below zero.
Comparing the two different charts with APO and PPO
From the above charts of Reliance and SBIN, it not possible to compare them using just APO. Assume an Entry Condition with APO crossing above 80 might generate the signal in Reliance but not in SBIN. On the other hand, PPO makes the prices relative to 100, hence making it a good tool to use across different stocks.
PPO can also be used to identify the trend and ride the trend.
In the above chart, we have changed the moving average type to Variable moving average for PPO. PPO crossing above +3 indicates the bullish trend and can be used to ride the trend until PPO goes below 0, indicating the trend reversal.