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The Percent Price Oscillator (PPO) can be used to measure the percentage distance between the closing prices and an exponential moving average. PPO measures the percentage distance between two exponential moving averages.
When selecting this indicator, there are three numbers to set in the parameters. The first number is the short EMA, the second number is the long EMA and the third number is the signal line. Setting the short EMA to “1” means its value will equal the closing prices for the underlying security, in this case the Dow Industrials. The second number sets the long EMA. The example below uses the 50-day EMA and 200-day EMA. We do not need a signal line for this exercise so it is set at “1”.
The Percent Price Oscillator moves above and below the zero line as prices cross the exponential moving averages. Chartist can see how far above or below the Dow Industrials is from these moving averages by looking at the PPO values. In August 2011, the Dow was over 11% below its 50-day EMA and around 10% below its 200-day EMA. The Dow was clearly oversold at the time. Currently, the Dow is 1.78% above its 50-day EMA and 3.33% above its 200-day EMA. You can read more about the PPO in our ChartSchool article.
