The Percentage Price Oscillator is a momentum indicator which measures the difference between the two moving averages as a percentage of the larger moving average. The moving averages are EMAs of period 26 days and 9 days. The PPO is shown with a centerline, a histogram and a signal line.
This indicator helps in spotting divergence in the market and identifying the centerline crossovers. It also confirms the direction of the trend, and hence, gives buy/sell signals. Just like the MACD indicator, the PPO also reflects the convergence and divergence of the two moving averages.
When the shorter MA is above the longer MA, it indicates that the PPO indicator is positive and the market is bullish currently. When the shorter MA is below the longer MA, it shows that the PPO is negative, and reflects a bearish momentum in the market.
The histogram represents the difference between the PPO and the 9-day EMA, which is also known as the signal line. The histogram is negative when the PPO is below the 9-day EMA, and the histogram is positive when the PPO is above the 9-day EMA.
Installing Percentage Price Oscillator In MT4 (Step-by-step procedure)
By default, the PPO indicator is not available in the MT4 Terminal, but it is available on the internet.
Follow the link below to download the indicator.
Download the zip file from the above link, extract it, and navigate to the MT4 directory/MQL4.
Go to the ‘Indicators’ folder and paste the extracted file there.
Restart your MT4 Terminal.
To apply the indicator on the MT4 terminal, follow the below sequence.
Insert > Indicator > Custom >Price Percentage Oscillator.
After applying the PPO indicator on to a chart, the screen will look something like this.
Percentage Price Oscillator – Trading Strategies
PPO + Moving Averages
In this strategy, we have paired the PPO indicator with the moving averages to identify trading signals.
The Moving Average is a leading indicator in the market which is quite popular among the trading community. Here, we shall be using the default setting of the PPO indicator and the moving averages, i.e., 9, 15 averages. The smaller moving averages work well only on lower timeframes. So, if you are an investor or positional trader, then use the 28 and 40 averages to trade the market.
When the 9-period moving average crosses the 15-period moving average below the price action, and the PPO indicator goes above the zero-line and gives a crossover, it indicates a bullish market.
In the below chart of USD/CAD, we can see that the MAs go below the price action, and the 9 period MA crosses the 15 period MA. Moreover, the crossover happens on the PPO indicator as well. Hence, this is a potential buy signal for us. Later, we can see that the market shooting up to the north.
Always use the recent high for booking profits. If the trend is strong enough, then book 50 per cent profit at the recent high and let the remaining position active until the market makes a brand new higher high.
As we always recommend, it is compulsory to have a stop-loss order before activating any trade, because none of the strategies can generate profit every time.
Note: This strategy works very well on the lower timeframes such as 60 minutes, 30 minute and the 15-minute timeframe.
When the 9 period moving averages crosses the 15-period moving averages above the price, and the PPO indicator goes below the zero-line and gives us a crossover, it indicates a sell.
As you can see in the below image, the USD/CAD forex pair was in an overall downtrend. And during the pullback phase, the moving averages go above the price action and at the same time gives us the crossover. At that stage, our strategy fulfilled half the criteria. Later, the PPO indicator also went below the zero-line and gave us the crossover. Therefore, now we can prepare to go short.
The problem with the retail traders is that most of the time they pull the trigger when 50 per cent of the rules of the strategy is fulfilled, and as a result, most often their trades hit the stop-loss. So, the key to making constant money in the market is to always follow the rules, because if you go for the money without following the rules, you are never going to make it.
Instead, if you forget about making money and solely concentrate on following the rules, then you are going to make more money.
Note: Whenever you trade the market by using this strategy, always go with the trend of the higher timeframe.
PPO + MACD
In this strategy, we pair the PPO and the MACD indicator. Both these indicators are oscillators. Except for a little bit of calculation, there is no difference between both these indicators.
The MACD indicator is the short form for Moving Average Convergence and Divergence. Just like the PPO, the MACD also consists of a centreline, two moving averages and a histogram. However, if we compare both the indicators, MACD is quite popular among the traders, and often identifies accurate signals.
When the PPO and the MACD indicator goes above the zero-line and gives us the crossover; it indicates a buy signal. Conversely, when the PPO and the MACD indicator goes below the zero-line and gives us the crossover, it indicates a sell signal.
Note: Trust the signals only when both the indicators give us the crossover near the zero-line. If the PPO gives the crossover near the zero-line, and the MACD goes way below the zero-line and then gives the crossover, then it’s a sign of a trend reversal. Do not consider that as a trade activation signal.
Below is the chart of NZDUSD on the 15-minute timeframe. As the pair was in an overall uptrend, we must be looking to go long on this one.
As you can see in the image, when the market was in the pullback phase, the crossovers happened, and the prices took off to the north. Hence, giving a heads up to the strategy.
If you are going with the trend, you aim for higher highs. So, the take profit is tentative.
When the pullback is strong enough, and both the indicators give a signal to activate the trade, always put the stop-loss order a little spacious to the recent high, because a strong pullback often gives spikes before moving towards the original direction.
Below is the chart of EURUSD on the 15-minute timeframe. As you can see, the market was in a downtrend from quite a long time. When the pair gave us a pullback up to the resistance line, the crossover happened on both of the indicators, indicating that the market is going to continue its original trend (downtrend).
When you’re going with the trend, always book partial profit at the recent low and rest of the profit around the next problematic area. You can even consider the upcoming support/resistance area of the higher timeframe to exit the rest of your position.
Always use a stop-loss order above the resistance area or at the most recent high.
Limitations of PPO
The PPO is prone to whipsaws on the lower timeframes, and sometimes it also provides the false crossover signals. During a dying market or in a ranging market, the centreline crossovers often give a lot of buy/sell signals. But, these signals usually do not work.
This indicator also spots a divergence in the market. However, in a trending market, the divergence often fails to perform.
The Percentage Price Oscillator is a momentum indicator. This indicator is one of the best oscillators to identify a divergence, overbought and oversold conditions. It also reflects the convergence and divergence of the two moving averages.
The default parameters of the PPO indicator are 12, 26 and 9. You can change these parameters to increase or decrease its sensitivity. You can also remove the histogram by setting the signal line value to 1.
And, by now, we believe that you have understood the PPO indicator very well. Use this indicator in your daily trading activities to generate reliable trading signals. Happy Trading.