An oscillator that attempts to capture shorter-term cycles for quicker determination of potential overbought and oversold levels.
Overview
Described in Steven Achelis’ book “Technical Analysis A-Z” the Detrended Price Oscillator (DPO) attempts to detrend the price action by filtering out cycles longer than its moving average. It tries to accomplish this by comparing the current price to a moving of price (n/2)+1 periods ago. By detrending prices, shorter-term cycles are more easily identified allowing for a quicker determination of potential overbought and oversold levels.
The DPO plotted on USD/CAD 1H Chart 4/11/2011
Source: VT Trader
Interpretation
Overbought/oversold Conditions: Unlike the RSI which suggests +70 readings as overbought and -30 readings as oversold, observation of historical readings will be needed for the DPO to determine its overbought and oversold readings for that period.
Trend Confirmation: Bullish confirmation is offered with a cross above the 0 level and bearish confirmation is offered with a cross below the 0 level.
Divergence: The divergence interpretation with price is similar to all other oscillators.
