Binary Trading Strategies Series 5: how to trade with the Detrended Price Oscillator
Definition and use of 'Detrended Price Oscillator (DPO)
The Detrended Price Oscillator (DPO) is a indicator providing price cycles analysis of a given asset, thus identifying peaks and troughs cycles.
The trader uses this information to spot entry and exit points.
The DPO is available on every charting software and the standard settings for the Detrended Price Oscillator are the 20 or 30 periods.
By determining the time cycles that the price of the asset tends to follow, this oscillator represents a good way for spotting entry and exit levels in forex, stocks, stock options, futures and now also binary options trading.
In the example below, the DPO is applied to Apple chart and we have drawn blue vertical lines indicating the supposed peaks and troughs according to the Detrended Price Oscillator.
In addition to the traditional way of the DPO indicating price cycles through the determination of the average time lag between peaks and between troughs, we tend to set top and bottom levels on the indicator chart where the indicator itself usually changes direction.
Unlike other oscillators, such as the Stochastic or MACD, DPO is not a momentum indicator and for this reason even better is the use of the Detrended Price Oscillator combined with momentum indicators like the RSI or the MACD.
The detrended price oscillator represents a simple and neat way of identifying prices cycles, removing momentum and long-term trends from the price pattern and focusing on short-term cycle length.
Used in combination with momentum indicators the DPO could return reliable entry and exit points that the trader can use in the various trading enviroments: stocks, forex, futures and other derivatives like binary options.
Choose the Speedlines trading system to pick the best entry points
Since the Detrended Price Oscillator does not indicate the precise entry point, you need to combine this indicator with a trading system that tells you exactly when to enter such as Speedlines, The Binary Optioner's flagship trading system.