Home > Technical analysis > Indicators and oscillators > Detrended Price Oscillator (DPO)

Detrended Price Oscillator (DPO)

Detrended Price Oscillator (DPO) is another variation of a moving average. It gives a tool of seeing basic cycles that are not so clear when the moving average is viewed in its primary phase by well hiding the main cycles. The moving average line is drawn as a straight, horizontal basis line on the Detrend chart. Afterwards price bars are put along this line depending on their correspondence to the moving average line.

The DPO tries to remove the trend in prices. Detrended prices let you more easily identify both cycles and oversold or overbought levels. One builds long-term cycles using a series of short-term cycles. When you analyze these shorter-term components of the long-term cycles, you see they are sometimes useful in identifying main extremums in the longer-term cycle. The DPO helps you eliminate these longer-term cycles from prices.

To calculate the DPO, create an n-period with a simple moving average (where "n" is the number of periods in the moving average). Afterwards subtract the moving average "(n / 2) + 1" days ago from the closing price which results in the DPO.

Related topics: