The price oscillator is a Technical Analysis indicator defined as the difference between the moving averages of the security costs. The significant difference between moving averages can be easily expressed either with relating to points or percentages.
The concept of price oscillator makes use of two moving averages, one is the shorter period, and another one is the long period, and then difference amongst those is calculated. Price oscillator describes the areas of oversold and overbought conditions and also to attempt the bearish as well as bullish cost moves.
The price oscillator is quite similar to MACD, but here the price oscillator makes use of two user-specified moving averages. On the other hand, MACD always makes use of 12 or 26-day moving averages, and it also expresses the difference in points.
The three significant components of price oscillator indicator are listed below, and every element need to understood thoroughly-
- The PPO line
The PPO line is the result of taking much longer-term EMA and then subtracting it from the shorter EMA. Then, the obtained result is divided by the longer EMA and multiplied by 100. The most commonly used values are 26days for longer-term EMA and a minimum of 12 days for shorter EMA. Well, it’s all left to the trader’s choice.
- The signal line
This is an EMI of the extended PPO line which is described in component 1. On the other hand, traders can easily choose the period length EMA that is used for the signal line.
- The PPO histogram
As time moves, the difference between the signal line and the PPO line will differ to a greater extent. The PPO histogram took the difference and plotted so that it can be easily converted into the readable histogram. The difference between these two lines oscillates around the zero lines.
When the price oscillator is positive, histogram value increase and the upside momentum value also increases. When the PPO is negative, the histogram value also decreases, and even the downside momentum also increases.