DPO - Detrended Price Oscillator

The No Trend Price Oscillator (DPO) is one of the most important technical analysis tools, its clever design to eliminate the influence of the general trend of the share price, in addition to facilitating the identification of cycles, places it as an essential indicator. The DPO is positioned within the category of momentum indicators, which are used in combination with others in order to identify the direction of movement. We invite you to read more of this article so that you can understand and apply everything when trading.

✨What is the DPO? ✨

As we were able to analyze previously, the DPO is used to remove the long-term influence of a current price trend. Recall that sometimes it is much easier to estimate the duration of a trend to be able to foresee a close reversal when the related price movements are completely eliminated within a chart. The DPO is typically aligned with the most current prices, plus it shifts to the left (past) to help eliminate current trends.

✨ How is it calculated? ✨

We can say that the DPO focuses on fluctuations within the trend. For what is calculated by subtracting from the current closing price the value of the simple moving average according to an amount of n days (the period for the moving average), it is calculated by taking the period chosen between two plus one, let's see an example of this: Period = 20 days Period for Moving Average = (20/2) +1 = 11 DPO = Current Close – SMA (11) This results in an indicator that usually oscillates around zero as the central value. The crossing of this indicator together with the zero level will mark the short-term buying-selling pressure. We must understand that it is extremely important to study how the long-term price trend is made up of short-term trends, and that by studying them we can understand future long-term changes.

✨ How can we trade with the indicator? ✨

The DPO is usually positive when the price is above and it is usually negative when it is below the average. So it is useful when operating in short time intervals. If you have no interest in long-term trading and want to exclude past trends from the estimates to only consider shorter fluctuations, using the DPO is the best option. This indicator is also often used to estimate the average cycle durationBy using the DPO you can be sure that you will be prepared for future trend reversals, calculate the distance from highs and lows to be able to estimate the average duration of the cycle. Don't forget to implement it when the current cycle is about to end. This incredible support tool can be complemented with other indicators such as MACD, MA or ATR. Learn more features and become an expert when doing technical analysis.