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DETREND PRICE OSCILLATOR
Doug Schaff
FX-Strategy
| Characteristic: | Trend Direction Indicator | ||
| Parameter Defaults: | MA Period | 14 | controls the measurement period for the detrend average |
| Plots: | DPO | ||
The objective of the Detrend Price Oscillator (DPO) is to remove the effects of the trend from price and identify potential cyclic patterns and thus take advantage of momentum indicator readings at cyclic extremes. To do this the DPO is measured by comparing price against a moving average. However, since moving averages have a built in lag, the current price is compared to the average of (Length/2) + 1 bars earlier.
DPO = Close – PMA
Where PMA = Moving Average of (Length/2) +1 bars earlier
It can be seen from the chart that in general the DPO will highlight price highs and lows with more clarity than can be taken from the bar chart. However, it is important to identify the periods of trends where the DPO will remain one side of the zero line for extended periods of time. As with momentum indicators, divergences can be identified with the DPO to assist in identifying potential reversals in trend.
