Detrended Price oscillator(DPO)

Detrend price oscillator is a trading indicator that is used to remove the long term trends thus focusing on price movement by using a displaced simple moving average thus allowing an individual to know the overbought or oversold market condition.

By using a displaced moving average, detrend price oscillator will be considered to be an oscillator with an oscillation at point 0.00.

Detrend price oscillator is based on the centerline as well as divergence.

Detrend price  oscillation is therefore calculated using the following formula;

Detrend price oscillator= closing price -SMA of{(n/2)+1}

Since Detrend price oscillator is based on the centerline, it, therefore, follows that when the detrend price oscillator crosses above 0.00, that will be an indication of an upward market movement thus the trader should be trading upwards while when the detrend price oscillator crosses below 0.00, that will be an indication of a downward market movement thus the trader should be trading downwards.

Also, since detrend price oscillator is also based on divergence, it, therefore, follows that when the detrend price oscillator is moving downwards at above 0.00 while the price is moving upwards, the price will reverse and start moving downwards in the same direction as the detrended price oscillator.
On the other hand, when the detrend price oscillator is moving upwards at below 0.00, while the price is moving downwards, the price will reverse and start moving upwards in the same direction as the detrended price oscillator. This is indicated as in the candlesticks below;




From the candlesticks chart above, there are 3 points, point A, B and C. Point A and B are the divergence points while point C represents the detrended price oscillator.

At point A, the market was moving upwards while the detrended price oscillator was moving downwards at above 0.00. This was an indication of an overbought market condition at point A thus the market reversed and start moving downwards in the same direction as the detrended price oscillator. This will signal the trader to close any buy position and open a sell position.
On the other hand at point B, the market was moving downwards while the detrended price oscillator was moving upwards at below 0.00. This was an indication of an oversold market condition at point B thus the market reversed and start moving upwards in the same direction as the detrended price oscillator.

Recommendation:If you are a day trader just use 1 min,5 min, 15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want detrended price oscillator to work well for you.