The Detrended Price Oscillator (DPO) is a commonly used indicator designed to detect cycles by identifying cycle highs and lows using an estimated cycle length. DPO compares closing price to a prior moving average and eliminates cycles longer than the moving average, and thus is used to isolate short-term cycles.
This indicator supports both Tick and Bar sources.
- Periods – Half the number of periods the cycle is estimated to be. Example: A 20 period cycle would use a value of 10. The default value is 10.
- DPO is a difficult indicator to use as it requires some fine tuning of the periods. First, one must estimate the length of the cycle they are trying to capture and then you use half that value for the value of Periods.
- Then draw levels when the cycle tops or bottoms out to indicator overbought and oversold areas. When the DPO value reaches these levels, these could be used as entry or exit signals.
- Always trade with the trend if there is one.
- Divergence signals can also be read to show a weakening trend or cycle.