How Traders Use The Detrended Price Oscillator To Suss Out Underlying Price Movements

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In this guide to understanding the Detrended Price Oscillator, we’ll show you what this chart looks like, explain its components, and teach you how to interpret it for buy and sell signals.

What Is the Detrended Price Oscillator?

The Detrended Price Oscillator attempts to filter out trend to focus on the underlying cycles of price movement.

To accomplish this, the moving average (generally a 14-period) becomes a straight line and price variation above and below the moving average becomes the Price Oscillator.

What Does the Detrended Price Oscillator Look Like?

The chart of the S&P 500 E-mini Futures contract visually depicts the Detrended Price Oscillator:

Detrended Price Oscillator overbought and oversold levels

How to Interpret the Detrended Price Oscillator

The Detrended Price Oscillator technical indicator attempts to show overbought or oversold levels and might also be used to potentially indicate buy and sell signals.

Bullish or Bearish?

When the Detrended Price Oscillator is above the zero line, it means that price is above its moving average, typically interpreted as a bullish sign.

Similarly, when the Detrended Price Oscillator is below the zero line, it means that price is below its moving average, considered to be a bearish sign.

Potential Buy Signal

There are two interpretations of buy signals:

  1. When Detrended Price Oscillator crosses above the zero line.
  2. When Detrended Price Oscillator is in a confirmed oversold area, as referenced by prior lows of the oscillator, and the Detrended Price Oscillator and price both break the downward resistance trendline.

Potential Sell Signal

There are two interpretations of sell signals:

  1. When Detrended Price Oscillator crosses below zero line.
  2. When Detrended Price Oscillator is in a confirmed overbought area, as referenced by prior highs of the oscillator, and the Detrended Price Oscillator and price both break the upward supporting trendline.

Summary

The Detrended Price Oscillator attempts to uncover hidden cycles of overbought and oversold conditions. For more information on Moving Averages and Moving Average crossover.

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Further Reading

Learn more about technical analysis indicators, concepts, and strategies including:

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