Trading PPO Divergence with Pivot-Based Reversal Signals

Summary

This strategy uses the Percentage Price Oscillator, calculated from fast and slow exponential moving averages, to identify potential momentum reversals. It compares successive price and PPO pivots: a lower price low paired with a higher PPO low generates a bullish divergence, while a higher price high paired with a lower PPO high generates a bearish divergence. The strategy enters in the direction suggested by each signal and sets percentage-based stop and target levels from the signal bar’s close.

The script also plots the PPO, its signal line, and histogram for context. Pivot detection requires subsequent bars to confirm a swing, so signals are inherently delayed relative to the pivot itself. The document provides no backtest statistics or evidence that divergence predicts reversals reliably. It also describes extra filters such as support or signal-line confirmation that are not implemented in the supplied strategy code; those should not be assumed to affect its entries.

Key ideas

• Bullish divergence occurs when price makes a lower pivot low while PPO makes a higher pivot low.
• Bearish divergence occurs when price makes a higher pivot high while PPO makes a lower pivot high.
• The strategy enters on confirmed pivot divergences and places percentage-based stops and targets.
• Pivot confirmation delays signals, and the document supplies no evidence of strategy performance.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.