Detrended Price Oscillator (DPO)

AAA

DEFINITION of 'Detrended Price Oscillator (DPO)'

An oscillator that strips out price trends in an effort to estimate the length of price cycles from peak to peak, or trough to trough. Unlike other oscillators, such as the Stochastic or MACD, detrended price is not a momentum indicator. It highlights peaks and troughs in price, which are used to estimate entry and exit points in line with the historical cycle. 

Calculation: Price (X/2 + 1) periods ago minus X-period simple moving average

Where X is the number of periods; 20 or 30 periods is common.

INVESTOPEDIA EXPLAINS 'Detrended Price Oscillator (DPO)'

The cycles are created because the indicator is displaced back in time. The chart below shows the indicator does not appear at the far right of the chart, and is therefore not a real-time indicator. The historical peaks and troughs in the indicator provide approximate windows of time when it is favorable to look for entries and exits, based on other indicators or strategies. 

In the example below, stock in Armonk, N.Y.-based International Business Machines (NYSE:IBM) is bottoming approximately every 1.5 to 2.0 months. Upon noticing the cycle, look for buy signals that align with this time frame. Peaks in price are occurring every 1.0 to 1.5 months- look for sell/shorting signals that align with this cycle.

International Business Machines (NYSE:IBM) is bottoming approximately every 1.5 to 2.0 months.

Source: Stockcharts.com

RELATED TERMS
  1. Percentage Price Oscillator - PPO

    A technical momentum indicator showing the relationship between ...
  2. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses ...
  3. Technical Indicator

    Any class of metrics whose value is derived from generic price ...
  4. Market Indicators

    A series of technical indicators used by traders to predict the ...
  5. Mass Index

    A form of technical analysis that looks at the range between ...
  6. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
Related Articles
  1. How To Profit From The
    Technical Indicators

    How To Profit From The "Night and Day" ...

  2. Use The McClellan Oscillator To Measure ...
    Technical Indicators

    Use The McClellan Oscillator To Measure ...

  3. How To Use The Chaikin Oscillator To ...
    Technical Indicators

    How To Use The Chaikin Oscillator To ...

  4. Accumulative Swing Index And The McClellan ...
    Active Trading

    Accumulative Swing Index And The McClellan ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center