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. Market Indicators

    A series of technical indicators used by traders to predict the ...
  2. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses ...
  3. Percentage Price Oscillator - PPO

    A technical momentum indicator showing the relationship between ...
  4. Technical Indicator

    Any class of metrics whose value is derived from generic price ...
  5. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  6. Indicator

    Indicators are statistics used to measure current conditions ...
RELATED FAQS
  1. What is the Detrended Price Oscillator (DPO) formula and how is it calculated?

    The fundamental belief in technical analysis is that past trading activity can be measured and used to estimate future trading ... Read Full Answer >>
  2. Why is the Detrended Price Oscillator (DPO) important for analysts and traders?

    The detrended price oscillator (DPO) is an ambitious indicator that aims to eliminate more powerful long-term trends in order ... Read Full Answer >>
  3. How can I spot trading opportunities looking at year-to-date (YTD) performance?

    Trading opportunities on the long side can be spotted by looking at stocks with the worst year-to-date (YTD) performance, ... Read Full Answer >>
  4. How does Net Operating Profit After Tax give a clearer view of the operating efficiency ...

    Net operating profit after tax (NOPAT) gives a clearer view of the operating efficiency of a company. While NOPAT is a measure ... Read Full Answer >>
  5. Which is better: dollar cost averaging or value averaging?

    Historical comparisons seem to indicate that value averaging (VA) tends to outperform dollar cost averaging (DCA), offering ... Read Full Answer >>
  6. Why is the Nasdaq more volatile than the NYSE?

    The Nasdaq exchange does tend to regularly evidence more volatility than its major competitor, the New York Stock Exchange ... Read Full Answer >>
Related Articles
  1. Technical Indicators

    How To Profit From The "Night and Day" Aroon Oscillator

    “Aroon” is a Sanskrit word loosely translated as the transition from night to day, appropriate for a measure that attempts to determine when a trend is about to develop into something of substance. ...
  2. Technical Indicators

    Use The McClellan Oscillator To Measure Market "Breadth"

    How broad is the market? And, once we answer that question, how can we use that answer to our advantage?
  3. Technical Indicators

    How To Use The Chaikin Oscillator To Your Advantage

    How best to reconcile increasing or decreasing volume with price fluctuations? No one has a definitive answer, but Marc Chaikin has come as close as anyone. Enter the Chaikin Oscillator.
  4. Active Trading

    Accumulative Swing Index And The McClellan Oscillator

    These indicators serve as confirmation for those of us who need to double check our findings on a regular basis.
  5. Technical Indicators

    Discovering Keltner Channels and the Chaikin Oscillator

    It's time to acquaint yourself with some lesser-known yet effective technical indicators.
  6. Forex Education

    Premier Stochastic Oscillator Explained

    This oscillator has been used since the 1950s by traders and investors to anticipate areas where the market may change direction.
  7. Forex Education

    Kairi Relative Index: The Forgotten Oscillator

    Though an older indicator, Kairi can still be a valuable tool for experienced investors.
  8. Active Trading

    An Introduction To Oscillators

    Find out how this indicator may help improve the average investor's entry and exit points.
  9. Active Trading

    Candlesticks And Oscillators For Successful Swing Trades

    Take advantage of short-term price moves by pinpointing reversals.
  10. Chart Advisor

    Stocks Breaking to Downside - Time to Sell?

    These stocks have broken patterns or trendlines to downside, indicating more selling could be coming.

You May Also Like

COMPANIES IN THIS ARTICLE
Hot Definitions
  1. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  2. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  3. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  4. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  5. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  6. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!