Price Oscillator

Definition

The Price Oscillator moving average is an investment indicator that compares two moving averages, in which one is larger than the other. The indicator can vary in different ways; it can vary in the measurements of the averages, technique that allows one to use points or percentages. It is mostly used with percentages, called Percentage Price Oscillator (PPO), because the measurements allows one to know when there is a shift from a positive to a negative side of the zero line. The price oscillator also varies in the length of the moving averages, using the length of one that doubles the length of the other, makes the reading of the chart easier; the moving averages are also used with a smaller difference in the case of more experienced investors.

Formula

  • Price oscillator using points

Shorter Moving Average – Longer Moving Average

  • Percentage Price Oscillator

100*((Shorter Moving Average – Longer Moving Average)/Longer Moving Average)

Use

When the shorter moving average line crosses above the longer moving average line, the PPO is crossing above the zero line. The same happens when the longer moving average line crosses below the shorter moving average line, the PPO is crossing below the zero line. When an asset is overbought, the oscillator is moving down towards the zero line after
hitting a ceiling. At this point one should look for selling short. After it crosses the zero line, one can review the candlesticks and the regular moving averages for the asset to sell short due to bearish behavior.
When an asset is oversold, the oscillator is moving upwards towards the zero line after hitting a bottom. At this point one should look for buying. After it crosses the zero line, one can review the candlesticks and the regular moving averages to buy due to bull behavior.

Possible Application

The price oscillator is a very useful indicator which can be used to evaluate when it is the best moment to buy or sell assets; evaluations of the bullish and bearish conducts are visible with the indicator. This way one could take advantage from the price movement to gain profit.

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