The Detrended Price
Oscillator (DPO) allows the trader to eliminate the trend in
prices, making it easier to spot cycles and determine whether a
stock is overbought or oversold. Short term cycles add together
like musical harmonics to create longer term cycles. By studying
the shorter term harmonics of a long term cycle, turning points
in the mmajor cycle can be determined. The DPO removes the longer
term cycles from prices, making the shorter term cycles more visible.
The DPO removes cycles greater than a value you specify, leaving
only the shorter components. From a day trading online perspective,
it is probably of limited use unless you have powerful scripting
charting software and the technical ability to program in the formula.
To calculate the DPO, create a simple moving average of the length
that interests you. Next, subtract the moving average from x days
ago where x is (the period specified / 2) + 1 day.
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