Price oscillator is a momentum based oscillator indicator.

Being a momentum oscillator,price oscillator is used to measure the momentum of a given price of security based on two moving average,the "fast" and the "slow" moving average thus considered to be the same as MACD. Since price oscillator is a momentum indicator, it therefore has an oscillation at point 0.00. price oscillator  is also called percentage price oscillator(PPO). Just like other oscillator indicators, price oscillator is based on centerline and divergence.

 

Since price oscillator is considered to be the same as MACD and is based on two moving average,it therefore follows that the difference between the two moving average divided by the slow moving average multiplied by 100 will give the price oscillator formula as follows;

 

PPO(Price oscillator)= {(Fast moving average-slow moving average)/slow moving average}*100

 Price oscillator indicator can further be explained as follows;

 

Concept of overbought and oversold

Since price oscillator is based on centerline and it has an oscillation at point 0.00,it therefore follows that when the slow moving average on the price oscillator rises above the fast moving average at below 0.00 ,that will be an indication of an oversold market condition thus the trader should close any sell position and open a buy position since the market will start moving upwards while when the slow moving average on the price oscillator falls below the fast moving average at above 0.00,that will be an indication of an overbought market condition thus the trader should close any buy position and open a sell position since the market will start moving downwards. This is indicated as from the candlesticks chart below;


 

From the candlesticks chart above,there are two points, point A and B. As you can see, the slow moving average has fallen below the fast moving average at above 0.00 thus an indication of an overbought market condition at that point.This signals the trader to close any buy position at that point and open a sell position since the market is starting to move downwards.On the other hand, at point B, the slow moving average has risen above the fast moving average at below 0.00 thus an indication of an oversold market at that point. This signals the trader to close any sell position at that point and open a buy position since the market is starting to move upwards.

Concept of divergence

Since price oscillator is also based on divergence,it therefore follows that when the price oscillator curve is trending upwards while the market is moving downwards,the market will experience a reversal and start moving in the same direction upwards as the price oscillator.On the other hand,when the price oscillator curve is trending downwards while the market is moving upwards,the market will experience a reversal and start moving in the same direction downwards as the price oscillator.This is indicated as from the candle sticks chart below;

 

 

From the candle sticks chart above,there are 3 points,point A,B and C.Point A and B represent divergent points while point C is the price oscillator(PPO).At point A,the market was moving upwards while the price oscillator curve was moving downwards.The market then reverse and start moving in the same direction downwards as the price oscillator curve.This will signal the trader to be trading in a downwards market at point A.On the other hand,at point B,the market was moving downwards while the price oscillator curve was moving upwards.The market then reverse and start moving in the same direction upwards as the price oscillator curve.

 

Recommendation:If you are a day trader just use 1 min,5 min,15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want price oscillator indicator to work well for you

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