Description:
The Detrended Price Oscillator (DPO) is a technical analysis tool developed by William Blau in 1991 and designed to eliminate long-term trends in asset prices by using a displaced moving average. This method allows the DPO to focus on intermediate overbought and oversold levels without being influenced by the most recent price action.
Input Parameters:
- Length: Number of periods used in the calculation.
- MA Type: Select the moving average type such as EMA, SMA, or HullMA.
- Offset: The offset value is used to access the data of any candle or indicator concerning the current candle, to access the current candle data it will use the offset value of "0", to access previous candle data "-1" offset value will be used, access data of previous to previous "-2" will be used.
Use Cases:
- Overbought and Oversold Conditions: The DPO oscillates around a zero line, with positive values indicating overbought conditions and negative values indicating oversold conditions. When the DPO reaches an extreme value, it can signal a potential reversal in price direction. Traders can use these signals to enter or exit trades in anticipation of a market reversal.
- Divergences: Divergences occur when the price and the DPO move in opposite directions. A positive divergence happens when the price reaches a new low while the DPO forms a higher low, indicating potential bullish price action. Conversely, a negative divergence occurs when the price reaches a new high, but the DPO forms a lower high, suggesting possible bearish price action.
- Identifying Market Cycles: The DPO is particularly useful for identifying market cycles and determining the dominant market rhythm. By analyzing the peaks and troughs of the DPO, traders can gauge the duration and magnitude of cyclical price movements, allowing them to time their trades more effectively.
This feature can be used in:
- Market Scanner
- Strategy Tester
- Multi-Factor Alerts
- Smart Checklist
Do you want to learn more? Check out our Learning Center Article.
May 10, 2024