ZLBT Chats

Sunday, October 3, 2010


Mary W. writes : "I'd like to see how much above or below the 200-day moving average an index or stock currently is. I do not seems to have such an indicator or oscillator to gauge the over / below percentage of the MA nor EMA 200. Can your charting system shows that or do I need to purchase another software that does ?"

Solution : While we don't have a specific indicator for "Percentage above/below the Moving Average", clever chartists that understand how the "Price Oscillator (PPO)" works can create such an indicator easily. The PPO is very similar to the well-known MACD Indicator. Both are based on the difference between two exponential moving averages. The PPO differs from the MACD in that it's values are converted into a "percentage difference" rather than the "absolute difference" used by the MACD.

Essentially, PPO(#1, #2) = Percentage Difference of EMA #1 from EMA #2.

Remember, what Mary asked to chart is "Percentage Difference of the Closing value from the 200-day Moving Average."

See the similarity in those two statements? If Mary is willing to use the difference between the close and a 200-day Exponential Moving Average, then we can accommodate her. The final piece of the puzzle is to recognize that "Closing value" is equal to "EMA(1)."

Given that, then >>>
PPO(1, 200) = Percentage Difference of EMA(1) (i.e., Close) to EMA(200).
Thus all we need to do is plot PPO(1, 200) to see the line that Mary is asking for.

Viola! With a couple of setting changes, we can overlay that indicator on our price plot:

Click either chart to see how they were constructed.............

Last we heard, Mary was happily charting percentage differences left, right & center. Hahahaha LOL!!!

Hopefully, this trick can help your chart analysis also!


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