Pretty Good Oscillator: Formula, Settings and Indian Examples

What the Pretty Good Oscillator Actually Measures

The Pretty Good Oscillator (PGO) was designed by Mark Johnson and published in Stocks and Commodities magazine. Its job is simple to state and useful in practice. It tells you how stretched the current price is from a moving average, but it does this in a volatility aware way. Instead of measuring the gap in plain rupees, the PGO divides that gap by the Average True Range, which is the typical daily range of the stock. The result is a number that you can compare across stocks of very different prices.

This matters a lot on the NSE. A Rs 12 move in Infosys, which trades near Rs 1,500, is a normal day. The same Rs 12 move in a Rs 250 PSU stock would be a violent swing. Plain price distance from a moving average cannot tell these two situations apart, but the PGO can, because it scales everything by each stock's own ATR. A reading of plus 3 means the price is roughly three average daily ranges above its mean, whether the stock is Reliance, Tata Motors or Bank Nifty.

Many traders confuse the PGO with classic oscillators like RSI or Stochastics that are bounded between 0 and 100. The PGO is unbounded. It has no fixed ceiling or floor. In a powerful trend it can run to plus 5 or beyond. That is a feature, not a bug. It lets the PGO act as a breakout and trend strength gauge rather than a pure mean reversion tool.

The Correct PGO Formula

The standard PGO formula is published as follows. PGO equals the close minus the N period Simple Moving Average of the close, divided by the N period Exponential Moving Average of the True Range. The True Range is the largest of three values for the day, the high minus the low, the absolute value of the high minus the previous close, and the absolute value of the low minus the previous close. The smoothed True Range here is just the ATR over the same N period.

A note on a common mistake. The original shallow version of this page used the standard deviation of the price change as the denominator. That is not the published PGO formula. The genuine PGO uses the Average True Range, not standard deviation. Both are measures of dispersion, but they are not the same number, and using standard deviation will give you readings that do not match charting platforms like TradingView or Zerodha Kite. Always use ATR in the denominator.

• Numerator: Close minus the N period Simple Moving Average of the close. This is the raw distance from the mean.
• Denominator: the N period ATR, which is the smoothed True Range. This normalises the distance by volatility.
• Default N: 14 periods, the same length most traders use for ATR and RSI.
• Output: an unbounded oscillator that swings around zero, with no fixed overbought or oversold ceiling.

A Fully Worked Example on Reliance Industries

Let us replace the old round number example with a realistic worked case on a real, highly liquid NSE stock. We will use Reliance Industries (RELIANCE) on a daily chart with a 14 period PGO. The numbers below are illustrative and chosen to be realistic for the stock's typical range. They are not a live quote and not a recommendation.

Assume the most recent daily close is Rs 2,945. Over the trailing 14 sessions the closing prices averaged out to a 14 day Simple Moving Average of Rs 2,880. Separately, the 14 period ATR, the stock's typical daily range, works out to Rs 38. Reliance commonly moves Rs 30 to Rs 50 in a normal session, so a Rs 38 ATR is reasonable. Now we apply the formula.

The PGO reads plus 1.71. In plain words, Reliance is currently trading about 1.7 average daily ranges above its 14 day mean. That is a healthy positive reading and confirms an uptrend, but it is well short of the plus 3 zone that signals an aggressive, possibly overextended breakout. A patient trader might treat plus 1.71 as a trend in good shape and wait for a pullback toward the moving average before adding.

Now suppose Reliance sells off and the next close drops to Rs 2,820 while the SMA has crept up to Rs 2,885 and ATR has expanded to Rs 45 on higher volatility. The numerator is 2,820 minus 2,885, which is minus 65. The PGO is minus 65 divided by 45, which is minus 1.44. The oscillator has flipped negative, telling you price has crossed below its mean and momentum has turned down. Notice how the rising ATR softened the reading. Had ATR stayed at 38, the same Rs 65 drop would have read minus 1.71. This is the volatility adjustment working as intended.

How to Read PGO Values

Because the PGO is unbounded, traders work with rough zones rather than fixed lines. The most widely used thresholds are plus 3 and minus 3. A move above plus 3 says the price has stretched three or more average ranges above its mean, which often marks the explosive phase of a breakout. A move below minus 3 marks an aggressive breakdown. Crossings of the zero line mark the moment price moves from below its mean to above it, or the reverse.

These zones are starting points, not laws. A momentum stock in a runaway trend, say an index heavyweight on a results beat, can sit above plus 3 for several sessions. Treat extreme readings as a warning to manage risk, not as an automatic reversal trade. The PGO tells you the price is stretched, it does not tell you the trend is finished.

Best Settings for Indian Markets

The default 14 period works well for swing trading liquid NSE cash stocks and index futures on the daily timeframe. It is responsive enough to catch turns within a few sessions yet smooth enough to ignore single day noise. For positional traders holding for weeks, a 20 or 21 period reduces whipsaws and aligns the PGO with the monthly rhythm of the market.

For intraday traders on Nifty and Bank Nifty futures, the daily timeframe is useless because you are flat by 3:30 pm. Drop to a 5 minute or 15 minute chart and keep the period at 14 candles. On a 5 minute Bank Nifty chart, a 14 period PGO reacts to fast moves while still smoothing out single tick spikes around news. Remember that Bank Nifty is far more volatile than Nifty, so its ATR is larger and the same PGO reading represents a bigger rupee move.

Using PGO on Nifty and Bank Nifty Options, with a Rupee Example

Most retail Indian traders express directional views through index options rather than buying the cash stock, so let us put the PGO to work on a real F and O contract. Suppose the daily PGO on Bank Nifty crosses above zero and pushes toward plus 1.5, confirming that price has reclaimed its 14 day mean with momentum. You decide to buy one lot of a monthly at the money Bank Nifty call. The current Bank Nifty lot size is 30.

Assume you buy the weekly call at a premium of Rs 320 per share. Your cost is 320 multiplied by 15, which is Rs 4,800 plus charges, which is your maximum loss if the view is wrong and the option expires worthless. The PGO trend holds for two sessions and the premium rises to Rs 540. You exit. Your gross profit is 540 minus 320, which is Rs 220 per share, times 15, which is Rs 3,300 gross. These figures are illustrative.

On the buy side, STT does not apply to option purchase. STT of 0.1 percent applies on the sell side of the option premium, so on the Rs 540 times 15 sale that is roughly Rs 8. Add exchange transaction charges, 18 percent GST on brokerage and exchange charges, stamp duty and a flat brokerage of around Rs 20 per order at a discount broker, and your total costs land in the Rs 90 to Rs 150 band. The point is that option costs are small in rupee terms but real, and they matter most on tiny scalps where the gross edge is thin.

Combining PGO with Other Indicators

The PGO is a stretch and momentum gauge, so it pairs best with tools that confirm direction or exhaustion. A reliable combination on Indian charts is PGO plus a 20 or 50 EMA for trend direction. Only take PGO long signals when price is above the 50 EMA, and only take short signals when price is below it. This single filter removes most of the counter trend whipsaws that plague oscillators in trending markets like the Nifty.

• PGO plus 50 EMA: trade PGO zero line crosses only in the direction of the 50 EMA slope.
• PGO plus RSI: when PGO is above plus 3 and RSI is above 70, treat it as a strong overextension warning and tighten stops.
• PGO plus volume: a zero line cross on above average delivery volume is far more trustworthy than one on thin volume.
• PGO plus VWAP for intraday: on a 5 minute chart, a PGO long cross while price holds above VWAP is a cleaner intraday entry.

Avoid stacking three momentum oscillators that all say the same thing. RSI, Stochastics and PGO are correlated, so using all three gives you false confidence, not extra information. Pair the PGO with something structurally different, such as a moving average, VWAP, or volume, so each tool answers a different question.

Limitations and Common Mistakes

The biggest limitation is that the PGO is poor in sideways, range bound markets. When the Nifty chops in a tight band ahead of an event like an RBI policy or US Fed meeting, the PGO crosses zero repeatedly without any follow through, generating a string of small losing signals. In such conditions the indicator is best ignored entirely. Use it when there is a clear trend, not when price is coiling.

A second mistake is treating extreme readings as automatic reversal trades. A PGO of plus 4 does not mean sell. In a strong post results rally or an index breakout, the PGO can stay extreme for days while price keeps climbing. Shorting a strong plus 4 reading without any price confirmation is one of the fastest ways to lose money on the long side of a trend.

• Do not use standard deviation in the denominator. The correct PGO uses ATR, and mixing them up gives readings that will not match your charting platform.
• Do not trade PGO signals in obvious ranges or just before major scheduled events.
• Do not fade extreme readings blindly. Wait for a price reversal, such as a swing high break, before acting.
• Do not ignore costs and slippage on small intraday option scalps, where charges can eat most of a thin edge.

A Simple PGO Trading Plan for Indian Traders

Here is a disciplined way to put everything together. First, define the trend with a 50 EMA on your chosen timeframe. Second, only act on PGO zero line crosses that go with the EMA direction. Third, use the plus 3 and minus 3 zones as profit taking and stop tightening triggers, not as fresh entry signals. Fourth, size positions so that a single stop out costs no more than 1 to 2 percent of your capital, whether you trade cash, futures or options.

For an options trader, this plan means buying a slightly in the money weekly call or put only when the PGO confirms the direction your EMA already favours, then exiting on either a target premium or a PGO flip back through zero. Always log the trade, the PGO reading at entry, the cost, and the net result after STT and brokerage. Over a few months your own journal will tell you which PGO thresholds work best on the specific instruments you trade, which is far more valuable than any generic rule.

Sources and Further Reading

For authoritative data and further reading, refer to Zerodha Varsity, Investopedia and NSE India. Always confirm current contract specifications, lot sizes, STT rates and tax rules on the official source before you trade, since SEBI and the exchanges revise these periodically. Nothing here is investment advice, and all numeric examples are illustrative.

Sources and Further Reading

For authoritative data and further reading on this topic, refer to Zerodha Varsity, Investopedia and NSE India. Always confirm current rules, rates and contract specifications on the official source before you trade.