DecisionPoint Price Momentum Oscillator (PMO)

The DecisionPoint Price Momentum Oscillator (PMO), created by Carl Swenlin, is an oscillator that is based on a Rate of Change (ROC) calculation that has been twice smoothed using exponential moving averages and a specially designed smoothing procedure. The PMO can also be used as a relative strength tool because it is normalized. Stocks can thus be ranked by their PMO value as an expression of relative strength.

Calculating the PMO

A 1-period rate of change is smoothed using two bespoke smoothing methods to produce the DecisionPoint Price Momentum Oscillator. Although the custom smoothing algorithms are quite similar to Exponential Moving Averages, they just use the period by itself rather than adding one to the time period option to create the smoothing multiplier (as in a real EMA).A copy

Smoothing Multiplier = (2 / Time period)

Custom Smoothing Function = {Close - Smoothing Function(previous day)} *
 Smoothing Multiplier + Smoothing Function(previous day) 

PMO Line = 20-period Custom Smoothing of
(10 * 35-period Custom Smoothing of
 ( ( (Today's Price/Yesterday's Price) * 100) - 100) )

PMO Signal Line = 10-period EMA of the PMO Line

The table below shows the calculation for Amazon’s PMO:

Interpretation

With respect to a zero line, the PMO oscillates. Typically, the PMO direction shows whether strength is rising or falling, and the trend angle’s steepness shows how powerful the move is. This calculation yields a normalized result that can be compared to the PMO result of any other securities or index because it is an internal ratio calculation rather than an external one, such as the usual relative strength calculation, which divides one price by another price index. Thus, chartists can use their PMO values to rank a collection of securities or indexes in terms of relative strength. The list does not need to be uniform; equities, mutual funds, and market indexes can all be ranked using the PMO.

The MACD (Moving Average Convergence-Divergence) indicator, developed by Gerald Appel, is an indicator that closely resembles the PMO. The absolute value of each indicator is the primary distinction between the PMO and MACD. While the PMO, as previously mentioned, is an internal ratio, the MACD is based on moving average calculations, meaning that the MACD readings of different stocks are unrelated. The PMO and MACD are displayed combined in the chart below.

While the PMO and MACD have similar shapes on shorter-term charts, the advantage of the ratio-type calculation for the PMO is evident on longer-term charts because the PMO is fairly constant, unlike the MACD. See the weekly and monthly charts below.