Detrended Price Oscillator trading indicator

Detrended Price Oscillator (DPO) is a technical analysis indicator for determining a short-term cycle, eliminating long-term trends in prices by comparing the current price with the price at a certain number of periods ago. It helps to separate trend from price, which helps to better understand short-term fluctuations in the market.

Formula:

DPO=Price from (2/X+1) periods ago−X period SMA

where:
X = Number of periods used for the look-back period
SMA = Simple Moving Average

Key Takeaways:

1. The DPO measures past prices against a simple moving average to estimate the range of cycle highs/minimums as well as the typical duration.
2. The indicator helps analyze the current price in the context of past prices, but does not predict future price levels.
3. The indicator is typically set up to look over the last 20-30 periods, but specific settings may vary depending on trader preference and market characteristics.

Counterarguments:

1. There is no guarantee that the historical cycle length will repeat in the future.
2. The indicator does not factor in the trend, so it is up to the trader to determine the trading direction with the help of other tools or analytical methods.
3.The indicator does not allow predicting future price levels.