What Is a Detrended Price Oscillator (DPO)?
The Detrended Price Oscillator (DPO) attempts to remove trends from price to make it easier for traders to identify price cycles with their peaks and troughs.
As the name indicates, DPO is a technical indicator designed to give information about the price of an asset without taking into account existing price trends.
Cycles more extended than the period specified for the indicator are removed, leaving only the shorter-term processes.
DPO is displaced to the left so that the indicator is aligned with the peaks and troughs in price.
The Formula for the Detrended Price Oscillator (DPO) Is:
How to Calculate the Detrended Price Oscillator (DPO)
- Determine a lookback period, such as 20 periods.
- Find the closing price from x/2 +1 periods ago. If using 20 periods, this is the price from 11 periods ago.
- Calculate the SMA for the last x periods. In this case, 20.
- Subtract the SMA value (step 3) from the closing price x/2 +1 periods ago (step 2) to get the DPO value.