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. Theresult is an oscillator that crosses above and below zero. Since the DPO is shifted back "x/2 + 1" periods, the last "x/2 + 1" periodswill have no values.
MetaStock prompts you to enter the number of periods.
The value entered should be the approximate length of the cycle you wishto 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 (see Cycle Lines) to the DPO to determine the length of the cycles.
