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 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

    Healthcare Stocks Continue to Be a Good Bet

    Here are four stocks in the healthcare sector that have already put up big numbers, and could still go higher, if they breakout to the upside.
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. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  4. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  5. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>
  6. What are the alert zones in a Fibonacci retracement?

    The most commonly used Fibonacci retracement alert levels are at 38.2% and 61.8%. A 50% retracement level is also commonly ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
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!