The Price Momentum Oscillator is a smoothed version of ROC (Rate of Change) which is developed by Decision Point to track changes in a trend strength. This Decision Point PMO (Price Momentum Oscillator) is an oscillator based on a ROF (Rate of Change) calculation that is smoothed twice with exponential moving averages that use a custom smoothing process. The PMO is normalized. This Price Momentum Oscillator can be used as a relative strength tool.
Description of Price Momentum Oscillator (PMO) :
The PMO oscillates in relation to a zero line. This Price Momentum Oscillator direction indicates if strength is increasing or decreasing, and the steepness of the trend angle demonstrates the power behind the move. This indicator is an internal ratio calculation vs external, such as the standard relative strength calculation, which divides one price by another price index. As a result, that is normalized. We can compare it with the PMO result of any other security or index. As a result, chartists can rank a list of securities or indexes in relative strength order simply by using their PMO values. The list does not have to be homogeneous the PMO can be used to rank market indexes, stocks and mutual funds in the same list.
Traders can find the Price Momentum Oscillator indicator under the STUDIES section in the Zerodha Kite browser app. Also this indicator is available in the Kite mobile App. You can attach the Price Momentum Oscillator indicator on to any charts likes daily, weekly, monthly or intraday. The Field is close and we can set the field open, high, low or close. The Smoothing Period is 35, Double Smoothing Period is 20 and Signal Period is 10. We can change the value of Smoothing Period, Double Smoothing Period and Signal Period. We can also set the Overbought and Oversold value. Currently, they are set at +25 and -25 respectively. Please check the image below to understand how we attached the Price Momentum Oscillator indicator in HDFC Bank share price chart.
As a momentum indicator, the PMO expresses the direction and velocity of price movement. In this regard, it is like other momentum indicators. It is more halting trends usually are accompanied by frequent PMO direction changes. In this Price Momentum Oscillator (PMO) bottoms and tops price momentum has shifted direction, so it can provide early flags to price tops and bottoms in this indicator. These are usually more reliable when the PMO is in the overbought or oversold territory.
The Price Momentum Oscillator (PMO) can be used as both a measure of relative strength, momentum, and overbought/oversold conditions. This indicator can also be used to determine price reversals using bull and bear crossovers.