Oscillators and the technical indicators play a major role in technical analysis of the stock. There are several indicators introduced by the technical analysts to gauge the market and predict the price action of the underlying assets. Various indicators are based on the momentum of the stock price; some gauge the trend of the market while some compares the recent price action to the price action of the previous period. Based on the requirement of technical analysts, different technical indicators are implemented. In this article, one of the most common indicators, detrended price oscillator is explained in detail.

As the name suggests, the detrended price oscillator removes the trend from the price of the stock in order to estimate the length of price cycle. The main aim of the oscillator is to make task easier for analysts to identify the price cycles. On the other hand, most of the technical indicators like, MACD and money flow index are momentum indicators but the Detrended Price oscillator is not a momentum indicator unlike the above stated. This price oscillator highlights the peak and troughs in the price of the underlying assets. The peak points and trough points are considered to determine the entry and exit points while trading in order with the price cycles. This indicator is not a real time indicator, as it does not appear far right of the chart. Chiefly, the technical analysts and investors implement this technical indicator along with other technical indicators to obtain the favorable time to enter into the market and exit out from the market.

The formula used by the technical analysts to calculate the detrended price oscillator is

DPO = Close – Simple moving average

At a glimpse, this price oscillator when implemented shows better accurateness than any other price oscillators. With the help of this indicator, you can remove the long-term trending and mid-term trending, but defines the short-term cycle length to improve the market timing.

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