Detrended Price Oscillator

The Detrended Price Oscillator is an indicator that attempts to eliminate the trend from prices. By eliminating the trend, it is possible to more easily identify cycles and overbought and oversold levels.

Calculation Method

To calculate the Detrended Price Oscillator, choose a time period P and calculate the moving average of prices delayed by P / 2 + 1 days. This average is subtracted from the closing price. Longer-term cycles than this period are eliminated from the prices, and shorter-cycle periods are retained.

DPO = Closing Price - SMAP(P / 2 + 1)

where:

• P: the moving average period
• SMA_P(n): moving average of period P, applied n days in the past

Example

Interpretation

Long-term cycles consist of a series of short-term cycles. Analyzing these short-term cycles that make up long-term cycles can be useful for identifying major turning points.
The Detrended Price Oscillator makes it possible to identify the fundamental cyclic components of a stock's price.