Detrended Price Oscillator (DPO) Indicator for MT4/MT5

Related: Quantora Candle Strength Analyzer MT5: Price Action and Wick Analysis - another powerful indicator for MetaTrader 5 traders.

The Detrended Price Oscillator (DPO) is a technical indicator designed to identify market overbought/oversold conditions and generate potential buy/sell signals. It isolates trends to focus on fundamental price movement cycles by transforming a moving average into a line, with price changes above and below this line indicating trends.

Also recommended: price channel indicator - similar indicator with strong performance on MetaTrader 5.

The DPO is particularly useful for highlighting short-term cycles. Analyzing these short-term components within longer-term cycles can help pinpoint major reversal points. By disregarding long-term price cycles, the DPO makes short-term cycles more apparent.

Calculation:

where:

xma - smoothing algorithm;

price[] - current price of a financial asset;

smooth_period - final indicator smoothing period;

dpo_period - DPO smoothing period;

bar - bar index.

Working with Trading Signals:

A bullish signal is indicated when the DPO is above its zero line, signifying that the price is above its moving average. Conversely, a bearish signal occurs when the DPO is below the zero line, indicating the price is below its moving average.

Long-Term Cycles Reversal Points (Divergences):

If the chart forms a higher peak or a deeper trough, anticipate a price reversal upwards or downwards, respectively.

If a peak or trough is lower/higher than the preceding one, a price decline is expected.

There are two interpretations for buy/sell signals:

Buy Signals:
- When the DPO crosses the zero line upwards.
- When the DPO is in the oversold area, confirmed by previous lows, and the upper channel line is breached by both the DPO and the price, limiting a descending price movement.

Sell Signals:
- When the DPO crosses the zero line downwards.
- When the DPO is in the overbought area, confirmed by previous highs, and both the DPO and the price breach a support line of an ascending trend.

The DPO is seldom used in isolation for generating trading signals. It is most effective when used in conjunction with other indicators. However, it serves as a valuable tool for revealing cycles and optimizing the settings of other indicators.

Supported Smoothing Algorithms:

- Simple Moving Average;

- Exponential Moving Average;

- Smoothed Moving Average;

- Linear Weighted Moving Average;

- JMA Adaptive Average;

- Ultralinear Smoothing;

- Parabolic Smoothing;

- Tillson's Multiple Exponential Smoothing;

- Smoothing using Tushar Chande's algorithm;

- Smoothing using Perry Kaufman's algorithm.

It is important to note that the phase1 and phase2 parameters have distinct meanings across different smoothing algorithms. For JMA, it is an external phase variable ranging from -100 to +100. For T3, it is a smoothing ratio multiplied by 100 for enhanced visualization. For Vidya, it represents the CMO oscillator period, and for AMA, it is the slow EMA period. In other algorithms, these parameters do not influence smoothing. For AMA, the fast EMA period is a fixed value of 2. The exponentiation ratio is also fixed at 2 for AMA.

This indicator utilizes classes from the smoothalgorithms.mqh library, which must be copied to the terminal_data_folder\mql5\include. The usage of these classes is detailed in the accompanying article.

You may also like: kinematic price physics: velocity and acceleration indicators - excellent alternative for indicator users on MetaTrader 5.

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#property link "https://robotfx.org"
#property version   "1.00"
#property indicator_separate_window
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• This tool is provided for educational and testing purposes only.
• Past performance does not guarantee future results.
• Trading involves substantial risk of loss. Use on a demo account first.
• Results may vary depending on market conditions, broker, and settings.
• We recommend thorough backtesting and forward testing before using with real funds.