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A Detrended price oscillator (DPO) is a technical analysis tool that is designed to remove long-term trends in the price and makes it easier to spot the underlying cycles of price movements. ln this article, I will cover everything about Detrended price oscillators (DPO) and how you can use them to spot buying and selling signals on IQ Option.
What is a Detrended price oscillator?
A Detrended price oscillator is one of the most efficient technical analysis tools used by traders to identify security trends and reversals in the financial markets. This indicator displays the difference between the past price and the simple moving average. For example, if the price period is 20 days, the moving average used to calculate the DPO would be the 20-day moving average shifted back by 10 days.
Talking about the components of the indicator, this indicator is backed by 20 days default period plus a moving average line that oscillates around the overbought and oversold levels. using these two levels you can easily identify the trends and reversals in the market and place trades accordingly.
The formula for a Detrended Price Oscillator is:
DPO = X /2 + 1 period ago – X period SMA
X= Number of periods
SMA = Simple Moving average
How to insert a Detrended price oscillator on IQ Option?
To insert a Detrended price oscillator on IQ Option follow the steps given below
Step 2: Open the IQ Option chart and click the indicator button.
Step 3: Search for the Detrended price oscillator at the top of the search bar.
Step 4: Make the necessary changes required and once you are done click apply.-
How to find signals using the Detrended price oscillator on IQ Option?
A Detrended price oscillator is one of the most efficient trading tools. You can find signals with the indicator using two methods
- Solo Detrended price oscillator: You can use this indicator solely on IQ Option. This indicator works exactly like the RSI indicator when the moving average line of the DPO indicator is near the overbought level consider an upcoming bearish trend and you can place a sell trade here vice versa, when the moving average line of the DPO indicator is near oversold level consider an upcoming bullish trend and you can place a buy trade here.
- Indicator Combination: The second way of this using indicator is by combining the Detrended price oscillator with other trend indicators like Stochastic or Parabolic SAR. For Instance, I am using Parabolic SAR. when you have got a bullish trend with a Detrended price oscillator plus you see Parabolic SAR dots above the price it signals a strong bullish trend and here you can place a buy trade vice versa, when you have got a bearish trend with a Detrended price oscillator plus you see Parabolic SAR dots are below the price it signals a solid bearish trend and here, you can place a sell trade.