The Price Oscillator displays the difference between two moving averages of a securitys price. The difference between the moving averages can be expressed in either points or percentages.
The Price Oscillator is almost identical to the MACD, except that the Price Oscillator can use any two user-specified moving averages. (The MACD always uses 12- and 26-day moving averages, and always expresses the difference in points.)
Moving average analysis typically generates buy signals when a short-term moving average (or the securitys price) rises above a longer-term moving average. Conversely, sell signals are generated when a shorter-term moving average (or the securitys price) falls below a longer-term moving average. The Price Oscillator illustrates the cyclical and often profitable signals generated by these one- or two-moving-average
The following chart shows Kellogg and a 10-day/30-day Price Oscillator. In this example, the Price Oscillator shows the difference between the moving averages as percentages.
I drew buy arrows when the Price Oscillator rose above zero and sell arrows when the indicator fell below zero. This example is typical of the Price Oscillators effectiveness. Because the Price Oscillator is a trend-following indicator, it does an outstanding job of keeping you on the right side of the market during trending periods (as show by the arrows labeled B, E, and F). However, during less decisive periods, the Price Oscillator produces small losses (as shown by the arrows labeled A, C, and D).

When the Price Oscillator displays the difference between the moving averages in points, it subtracts the longer-term moving average from the short-term average:

When the Price Oscillator displays the difference between the moving averages in percentages, it divides the difference between the averages by the shorter-term moving average:

The Price Rate-of-Change (“ROC”) indicator displays the difference between the current price and the price x-time periods ago. The difference can be displayed in either points or as a percentage. The Momentum indicator displays the same information, but expresses it as a ratio.
It is a well recognized phenomenon that security prices surge ahead and retract in a cyclical wave-like motion. This cyclical action is the result of the changing expectations as bulls and bears struggle to control prices.The ROC displays the wave-like motion in an oscillator format by measuring the amount that prices have changed over a given time period. As prices increase, the ROC rises; as prices fall, the ROC falls. The greater the change in prices, the greater the change in the ROC.
The time period used to calculate the ROC may range from 1-day (which results in a volatile chart showing the daily price change) to 200-days (or longer). The most popular time periods are the 12- and 25-day ROC for short to intermediate-term trading. These time periods were popularized by Gerald Appel and Fred Hitschler in their book, Stock Market Trading Systems.
The 12-day ROC is an excellent short- to intermediate-term overbought/oversold indicator. The higher the ROC, the more overbought the security; the lower the ROC, the more likely a rally. However, as with all overbought/over-sold indicators, it is prudent to wait for the market to begin to correct (i.e., turn up or down) before placing your trade. A market that appears overbought may remain overbought for some time. In fact, extremely overbought/oversold readings usually imply a continuation of the current trend.
The 12-day ROC tends to be very cyclical, oscillating back and forth in a fairly regular cycle. Often, price changes can be anticipated by studying the previous cycles of the ROC and relating the previous cycles to the current market.

I drew “buy” arrows each time the ROC fell below, and then rose above, the oversold level of -6.5. I drew “sell” arrows each time the ROC rose above, and then fell below, the overbought level of +6.5.
The optimum overbought/oversold levels (e.g., 6.5) vary depending on the security being analyzed and overall market conditions. I selected 6.5 by drawing a horizontal line on the chart that isolated previous “extreme” levels of Walgreen’s 12-day ROC.
When the Rate-of-Change displays the price change in points, it subtracts the price x-time periods ago from today’s price:

When the Rate-of-Change displays the price change as a percentage, it divides the price change by price x-time period’s ago:

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