InvestorQ : What is an absolute price oscillator in technical analysis and how is it interpreted for trading?
shrinidhi Rajan made post

What is an absolute price oscillator in technical analysis and how is it interpreted for trading?

Answer
user profile image
Riya Dwivedi answered.
1 year ago


The Absolute Price Oscillator (APO) displays the absolute difference between two exponential moving averages of a security's price and is expressed as an absolute value. The APO is also a time series based data set. The formula for APO is as under:

APO = Shorter Period EMA – Longer Period EMA

The APO for the first day will be the difference between the 50-day EMA of Day 1 and the 200-day EMA of Day 1. The APO for the second day will be the difference between the 50-day EMA of Day 2 and the 200-day EMA of Day 2. The APO for the third day will be the difference between the 50-day EMA of Day 3 and the 200-day EMA of Day 3. This is how the entire calculation of APO goes on. Now let us see how the APO indicator works? APO crossing above zero is considered bullish, while crossing below zero is bearish. A positive indicator value indicates an upward movement, while negative readings signal a downward trend.

Let us also look at divergences with respect to APO. Divergences are formed when a new high or a new low in price is not confirmed by the Absolute Price Oscillator (APO). A bullish divergence forms when price makes a lower low, but the APO forms a higher low. This indicates less downward momentum that could foreshadow a bullish reversal and could be more due to limited unwinding. A bearish divergence is formed when the price makes a higher high, but the APO forms a lower high. This shows less upward momentum or loss of momentum and the price rise could be coming purely due to short covering in the stock or the market. This could typically foreshadow a bearish reversal.