How to spot intraday market cycles with the Detrended Price Oscillator at Olymp Trade


Contents

Detrended Price Oscillator on Olymp Trade

Key Takeaways🔑

The Detrended Price Oscillator (DPO) helps identify price cycles and predict future peaks and troughs.
While useful, the DPO does not provide trading signals or indicate trend direction independently. Other indicators should be used in conjunction.
Practicing with a DPO on a free demo account before live trading is recommended to better understand its functionality and implications.

Detrended Price Oscillator specification

The indicator called Detrended Price Oscillator or DPO in short, highlights lows and highs on the price chart. It helps in predicting future peaks and troughs based upon a historical cycle. Thus, it is not a momentum indicator as opposed to other oscillators like MACD or Stochastic.

The DPO measures the interval between lows and highs in time. Typically, a period of 20 or 30 candles is used. If, for example, two peaks were noted two months apart in the past, it can be predicted the subsequent one will be in two months from the last one. This piece of information can be used as a signal of selling opportunity. The same way the distance between two troughs in the past can be used to estimate the future buying opportunity.

How to add the Detrended Price Oscillator to the chart at Olymp Trade

Log in to your trading account on the Olymp Trade platform. Choose the asset for the session and set the type of the chart. Then, click on the technical analysis tools icon. You will find the Detrended Price Oscillator on the list of the available indicators.

How to add Detrended Price Oscillator on Olymp Trade
How to add the Detrended Price Oscillator

The Detrended Price Oscillator will be displayed in a separate window beneath the price chart.

Detrended Price Oscillator formula

The formula to calculate the DPO looks as follows:

DPO = Price from X/2 + 1 periods ago – X period SMA

SMA is a Simple Moving Average and X indicates how many periods were taken for a retrospect period.

To calculate the DPO you must first decide on the retrospect period. It can be, for example, 20 periods. Then, determine the closing price from the X/2 + 1 period back. For 20 periods, it will be 11. Calculate the Simple Moving Average for the latest X periods. It will be 20 in our example. Now, deduct the value of the SMA from the closing price X/2 + 1 period ago and you get the value of the DPO.

Detrended Price Oscillator (DPO) displays in a separate window below the chart
Detrended Price Oscillator (DPO) displays in a separate window below the chart

Reading the Detrended Price Oscillator

As I mentioned before, the DPO is used to predict future lows and highs. To do this, you need to check what was the distance between peaks or troughs in the past. You can also measure the length of the trend by checking how far was the peak and the trough from each other.

The oscillator is positive when the price from X/2 + 1 period ago is over the SMA. The indicator is negative when the price from X/2 + 1 period ago is beneath the SMA line.

Using the Detrended Price Oscillator at Olymp Trade

Below you will find the chart for Bitcoin. You can notice that the price forms tops every 40 to 60 minutes. You should look for opportunities to enter a short position 40 to 60 minutes from the last peak.

Bitcoin is forming tops 40-60 minutes apart that day
Bitcoin is forming tops 40-60 minutes apart that day

In the example below for the EURUSD chart, the price forms bottoms every 45 to 60 minutes. Search for the opportunity to enter a long trade after 45 to 60 minutes from the last bottom.

EURUSD is forming bottoms 45-60 minutes on given chart
EURUSD is forming bottoms 45-60 minutes on a given chart

Another way of using the DPO is to look for divergences. When the price goes in the opposite direction to the oscillator, you should look for a possible change in the main trend.

use DPO to find divergencies
You can also use DPO to find divergences

What is the distinction between the Detrended Price Oscillator and the Commodity Channel Index?

The DPO, as well as CCI, catches the cycles in the price movements. The difference lies in the way they capture these cycles. The DPO helps to determine the time between the tops, the bottoms, or the tops and bottoms. While the CCI oscillates between the values -100 and +100 and the breakouts from these levels gives a sign of something important like the beginning of a new trend. So it focuses on the start and end of the cycle and not the time that passes between them.

Disadvantages of utilizing the Detrended Price Oscillator

The DPO gives information about the length of the cycle. It does not, however, produce trading signals. It is rather used in addition to other tools. Moreover, the cycles may differ in the future. They can be shorter or longer than they were in the past Thus, it is used to estimate potential entry points.

The DPO does not tell what is the direction of the trend. A trader has to use extra tools to determine whether to enter a sell or buy position.

Also, the levels of the tops or bottoms are not necessarily equal each time. You need to analyze the chart carefully to catch significant movements. The DPO will more or less tell you when to expect trend reversal. For identifying the right moment to open a transaction you might use price action or other tools such as RSI or Stochastic.

Pros and Cons of Using Detrended Price Oscillator (DPO) 👍👎

👍 Pros:

  • Helps in identifying the cyclical patterns in price action.
  • Can aid in predicting future price peaks and troughs.
  • Can be utilized in conjunction with other indicators to generate trading signals.

👎 Cons:

  • Does not provide trading signals independently.
  • Does not indicate the direction of the trend.
  • May not be suitable for all traders, as it requires a good understanding of technical analysis and price cycles.


Comparison Between Detrended Price Oscillator (DPO) and Commodity Channel Index (CCI)

Indicator Key Functions
Detrended Price Oscillator (DPO) DPO helps to identify and measure the cycles in price movements. It does not give trading signals or indicate the trend direction independently.
Commodity Channel Index (CCI) CCI also catches the cycles in price movements, but focuses more on the start and end of a cycle rather than the time between cycles. It oscillates between -100 and +100 to indicate possible trend changes.

Summary

The Detrended Price Oscillator helps in identifying the price cycles. You can predict the future peaks and troughs based on historical data. Nevertheless, it does not guarantee what will happen in the future, so it is a good idea to use other indicators together with the DPO.

Olymp Trade has a free demo account in its offer. I recommend using it to get to know the indicator. Trade with it in a risk-free environment before you invest in your real account. Keep in mind that the DPO is far from a risk-free strategy. You’re always going to be facing risks when dealing with the financial market, and this one is no different. Be prepared to deal with losses accordingly.

I would be happy to hear what you think about the Detrended Price Oscillator. Share your observations in the comments section below.

Good luck!

FAQs About Using Detrended Price Oscillator (DPO)

  • Q: Is the DPO suitable for beginners?
    A: While the DPO is a valuable tool, it requires some understanding of technical analysis and price cycles. Therefore, beginners may need to study and practice using it before employing it in live trading.
  • Q: Can the DPO be used for long-term trading?
    A: The DPO is typically used for short-term trading as it helps identify cycles and predict price peaks and troughs. Its effectiveness in long-term trading can vary.
  • Q: Can the DPO be used independently?
    A: While it can be used independently for analyzing price cycles, the DPO does not provide trading signals or indicate the direction of the trend independently. It is usually used in conjunction with other indicators.
  • Q: What other indicators can be used along with DPO?
    A: DPO can be used with indicators like RSI or Stochastic for better trade signals. Price action can also be a useful tool in conjunction with DPO.
  • Q: Does the DPO guarantee successful trades?
    A: No, the DPO or any other indicator can guarantee successful trades. Trading always involves risks and potential losses.

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Bart Bregman

Full time day trading, and helping out with Olymp Trade wiki in my spare time to create an awesome platform for beginners. I'm a digital nomad that travels the world while working from everywhere!

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