The Detrended Price Oscillator attempts to filter out trend in order to focus on the underlying cycles of price movement. To accomplish this, the moving average (generally 14-period) becomes a straight line and price variation above and below the moving average becomes the Price Oscillator. The Detrended Price Oscillator technical indicator can show overbought or oversold levels and can also create buy and sell signals.
The detrended price oscillator is clearly a form of price oscillator, and is related to the percentage price oscillator (PPO) and the absolute price oscillator (APO). The APO is an essentially equivalent to the well-known MACD indicator. A PPO is an improved alternative to the APO or the MACD for use when a stock’s price change has been large, or when comparing the oscillator behavior for different stocks which have significantly different prices.
Long-term cycles consist of several shorter cycles. Analyzing such short components helps to define crucial moments of the cycle’s development. DPO gives a chance to eliminate the influence on prices of long-term cycles.
The purpose of the indicator is to look at overbought or oversold conditions within a longer trend.
When the Detrended Price Oscillator is above 0 it is said to be overbought. When it is below 0 it is said to be oversold. The buy signal is produced when the oscillator moves above 0. The sell signal comes when the oscillator moves below 0. Below is an example of how the indicator appears on a chart.