Percentage Price Oscillator – PPO Indicator for MT4

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Percentage Price Oscillator - PPO Indicator for MT4

Introduction to the Percentage Price Oscillator – PPO Indicator

Most momentum indicators and oscillators are computed based on absolute price movements. Although this method can also be effective, one can say that it is not standardized across different tradeable instruments. The Percentage Price Oscillator is an attempt at standardizing momentum indications using percentage price changes to compute for momentum.

What is the Percentage Price Oscillator – PPO Indicator?

The Percentage Price Oscillator or PPO Indicator is a momentum technical indicator which presents indications of momentum direction as an oscillator. Although it does have some similarities to some of the more popular oscillators such as the MACD, it is also quite peculiar since it uses percentage changes of price to compute for momentum instead of absolute price.

This indicator plots two oscillator lines. The solid blue line is the main PPO line, while the dashed red line is the signal line paired with the PPO line.

Percentage Price Oscillator - PPO Indicator for MT4

Positive PPO lines indicate a bullish trend, while negative PPO lines indicate a bearish trend.

Momentum can also be identified based on how the PPO line and signal line interacts. Momentum is bullish whenever the PPO line crosses above the signal line, and bearish whenever the PPO line crosses below the signal line.

How the Percentage Price Oscillator – PPO Indicator Works?

The PPO Indicator has a somewhat similar computation to the MACD. It computes for the difference between a pair of fast and slow EMA lines. However, these EMA lines are derived from percentage changes of price.

It also derives its signal line as a Simple Moving Average (SMA) of the PPO line.

How to use the Percentage Price Oscillator – PPO Indicator for MT4

The PPO Indicator has three variables which can be adjusted within its settings.

“FastEMA” and “SlowEMA” pertains to the number of periods used in computing for the underlying EMA of the price percentage changes.

“SignalEMA” pertains to the number of periods computed for the SMA of the PPO line.

How the Percentage Price Oscillator - PPO Indicator Works

The PPO line can be used to determine trend and momentum reversals.

A crossing over of the PPO line above or below zero can be indicative of a potential trend reversal.

Momentum reversals on the other hand are indicated by a crossing over of the PPO line and the signal line.

Additionally, as an oscillator, the PPO line can also be used to determine reversals using divergences.

Buy Trade Setup

When to Enter?

Wait for the PPO line to drop well below zero. Open a buy order as soon as the PPO line crosses above the signal line. Set the stop loss on the support below the entry candle.

When to Exit?

Close the trade as soon as the PPO line crosses below the signal line.

How to use the Percentage Price Oscillator - PPO Indicator for MT4 - Buy Trade

Sell Trade Setup

When to Enter?

Wait for the PPO line to spike well above zero. Open a sell order as soon as the PPO line crosses below the signal line. Set the stop loss on the resistance above the entry candle.

When to Exit?

Close the trade as soon as the PPO line crosses above the signal line.

How to use the Percentage Price Oscillator - PPO Indicator for MT4 - Sell Trade

Conclusion

The PPO Indicator is an excellent alternative to the MACD. Its percentage based approach seems to work well in pointing out trend and momentum reversals. However, it can also produce false signals whenever the market starts to become choppy. As such, it is best to use this indicator in confluence with other momentum and trend based signals for better accuracy.

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