What is the 'Detrended Price Oscillator (DPO)'

A detrended price oscillator is 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 moving average convergence divergence (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.

BREAKING DOWN 'Detrended Price Oscillator (DPO)'

A detrended price oscillator is one of many oscillators that can be used in technical analysis. In general, oscillators use trendlines that can be drawn either vertically or horizontally to help an investor identify signals.


Oscillators use trend lines to create bands for identifying technical analysis signals. Trendlines can be drawn at resistance and support lines creating a standard channel pattern for identifying resistance and support signals. Oscillator bands can also be drawn with vertical lines creating multiple trendlines that capture peak and trough movements.

Oscillators will typically use a scaling system from 0 to 100 which makes their construction slightly different than the development of standard envelope channels. Some of the most common oscillators followed by technical analysts include the stochastic, RSI, ROC, MFI and MACD oscillators.

Detrended Price Oscillator Calculation

The detrended price oscillator seeks to help a trader identify a security’s price cycle. Its charting strategy focuses more on price cycles than standard trends. To do this it utilizes several trendlines including vertical bands, simple moving average trendlines and a detrended price oscillator line.

These trendlines are calculated and utilized from the variables shown below:

X is first determined by the number of periods; 20 day or 30 day periods are common.

Simple moving average over an "n" day period is needed.

DPO = Closing price - Simple moving average [from (n / 2 + 1) days ago]

The cycles are created because the indicator is displaced back in time by (n / 2 + 1). The chart below shows how the indicator can help to identify historical peaks and troughs. 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 timeframe. Peaks in price are occurring every 1.0 to 1.5 months - look for sell/shorting signals that align with this cycle.

IBM) is bottoming approximately every 1.5 to 2.0 months.

Source: Stockcharts.com

The chart below also provides further insight on how different variables are factored into the DPO.

Source: Stockcharts.com

  1. Stochastic Oscillator

    A stochastic oscillator is a technical momentum indicator that ...
  2. Chande Momentum Oscillator

    The Chande momentum oscillator is a technical momentum indicator ...
  3. Derivative Oscillator

    The Derivative Oscillator applies a MACD histogram to a double-smoothed ...
  4. Signal Line

    Signal lines are used in technical indicators, especially oscillators, ...
  5. Klinger Oscillator

    The Klinger Oscillator was developed to determine the long-term ...
  6. McClellan Oscillator

    The McClellan Oscillator is a market breadth indicator that is ...
Related Articles
  1. Trading

    Best technical indicators to pair with the stochastic oscillator

    Learn how the stochastic oscillator indicator is sensitive to price, and discover technical indicators traders use to complement it such as the RSI and MACD.
  2. Trading

    Percentage Price Oscillator – An 'Elegant Indicator'

    The percentage price oscillator, which measures momentum, is among the more sophisticated tools in the technical analysis arsenal.
  3. Trading

    How to Interpret the Volume Zone Oscillator

    Introduced in 2009, the volume zone oscillator (VZO) is gaining traction with traders and technicians.
  4. Trading

    Combining Trend and Countertrend Indicators

    In the long run, one of the best approaches might be to meld these two disparate methods.
  5. Trading

    Divergences, Momentum and Rate of Change

    Divergences can signal a change in direction, but traders must also look at the speed of change.
  6. Trading

    Discovering Keltner Channels and the Chaikin Oscillator

    It's time to acquaint yourself with some lesser-known yet effective technical indicators.
  7. Trading

    Introducing The Bearish Diamond Formation

    Profit-taking opportunities abound using this lesser-known pattern. Find out how.
  8. Trading

    Candlesticks and Oscillators for Successful Swing Trades

    Take advantage of short-term price moves by pinpointing reversals using candlesticks and oscillators.
  1. What are the most common momentum oscillators used in day trading?

    Take a look at some commonly used momentum oscillators that can also be used for intraday trading, such as stochastic oscillators ... Read Answer >>
  2. How do I read and interpret an Stochastic Oscillator?

    Understand the basics of the stochastic oscillator and how analysts and traders use this measure of trend momentum to predicts ... Read Answer >>
  3. What is the difference between Stochastic Oscillator and Stochastic Momentum Index?

    Discover how the stochastic oscillator and the Stochastic Momentum Index differ and why the latter is considered a more refined ... Read Answer >>
  4. How do I build a trading strategy with the Chande Momentum Oscillator?

    Learn about the concepts behind Tushar Chande's momentum oscillator, including some simple steps you can use to help build ... Read Answer >>
  5. Is a Slow Stochastic Effective in Day Trading?

    The good news is that most technical indicators can be adjusted to be of value to a day trader. Read Answer >>
  6. How reliable is using the moving average convergence divergence (MACD) in trading ...

    Why the moving average convergence divergence (MACD) oscillator is considered one of the simplest, most versatile and most ... Read Answer >>
Trading Center