DPO indicator: description of settings and algorithm for receiving signals in trend and countertrend trading with an oscillator

DPO is a technical price analyser designed to work with short-term market cycles. This instrument is great for scalpers and daytraders. DPO indicator was added to the standard set of IQ Option platform instruments, as it successfully works with Forex, CFD-contracts and binary options.

Oscillator settings: description and recommendations

At first glance, indicator is similar to other oscillators. However, DPO does not depend on long-term tendencies, since an indicator is intended for analysis of short-term market cycles.

User needs to perform the following actions that to run DPO in broker’s trade room:

  1. click to shortcut of available indicators list;
  2. select an oscillator from drop-down list.

Immediately, the oscillator settings panel opens. Instrument parameters are divided into two blocks:

  • basic settings, where for trader is available variables of calculation period SMA and a base line of indicator;

  • colours and display settings is a tab where user can choose the colours and sizes of lines, and also enable or disable technical instrument elements.

Indicator has a few settings. Instrument consists of two elements: the oscillator curve (parameter: period) and zero line (parameter: base line). Developers of indicator recommend accepting a period value not more than 21 candles, since instrument is designed for small cycles of market. It is allowed to decrease the period value by a factor of 7, i.e. 14 and 7 candles. The value for the base line is 0.

How to trade with a DPO indicator

Traders who work with this price analyser share trading with DPO on following styles:

  • trend style;
  • countertrend style.

Trend signals are indicator impulses that confirm the strength of current tendency, and inform user about opening of trading position. Analysts and traders regard that when indicator curve crosses baseline is a trend signal.

User should sell when oscillator curve crosses zero from top to bottom, since the downward market trend has been confirmed.

Trader should buy, if indicator curve passes through zero level from the bottom to the top, since it means that market is growing.

Countertrend signals are impulses that inform the trader of an early reversal of current trend. User needs independently mark overbought/oversold levels on instrument scale that to interpret countertrend signals with help of an oscillator. Typically, experienced users of DPO recommend values: -0.05 and 0.05, after which the current tendency weakens and turns.

Principle of countertrend trade with DPO indicator is similar to working with many oscillators (for example: MACD, STOCH, RSI, etc.).

Trader must selling if indicator curve crosses level (0,05). In this case, upward trend is overbought and market is turning.

User should buying if oscillator curve crosses level (-0.05), i.e. line it comes out of oversold zone, since it means that bearish trend is weakened and price turns.

Summary

Article describes a detrended price oscillator. Trader, who will carefully study the principle of DPO, will add a technical analyser to arsenal for short-term market cycles. Features of trade with this instrument are independence from main market trends and the ability to work effectively in smallest timeframes.

But traders should remember that DPO signals are not 100% credible guide to action, as market is dynamic. Trader must check all received oscillator information from at least two or three of two or three technical indicators in addition. This approach will reduce the risk of making wrong decisions in trade and save deposit money.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future

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