DEFINITION of Detrend
To detrend a forecasting model means to remove the effects of accumulating data sets from a trend to show only the absolute changes in values and to allow potential cyclical patterns to be identified. This is done using regression and other statistical techniques.
BREAKING DOWN Detrend
Different charting services include the use of a detrend price oscillator, which gives traders a method for analyzing shorter-term cyclical patterns. These patterns can then be used to more effectively identify major turning points in the longer-term cycle.
Example of Detrending
For example, often times market momentum will carry pricing trends. From around 2011-2015, there was a large low-quality trend in the U.S. equity markets. Stocks from issuers that had lower quality fundamentals than your classic blue-chip companies outperformed by a wide margin. This data, if not "detrended" from forecasting models, might have created false positives for market tops or other economic turning points.