|
Detrended
Price Oscillator
Description
The
Detrended Price Oscillator (DPO) is an indicator
that attempts to eliminate the trend in prices.
Detrended prices allow you to more easily
identify cycles and overbought/oversold levels.
The
calculation is quite simple; you simply center an
x-period moving average by shifting it back x/2 +
1 periods. This
centered moving average is then subtracted from
the close. The
result is an oscillator that crosses above and
below zero.
Since
the DPO is shifted back "x/2 + 1"
periods, the last "x/2 + 1" periods will
have no values.
MetaStock
Pro prompts you to enter the number of
periods. The
value entered should be the approximate length of
the cycle you wish to identify.
Cycles longer than the number of periods
you enter will not be shown.
The default value is 20.
Interpretation
Long-term
cycles are made up of a series of short-term
cycles. Analyzing
these shorter term components of the long-term
cycles can be helpful in identifying major turning
points in the longer term cycle.
The DPO is helpful in recognizing the
underlying cyclical components of the price
action.
You
may find it helpful to fit cycle
lines to the DPO to determine the length of
the cycles. |
