According to the creator of the indicator, the analysis of micro-oscillations inside the trends in the long term gives a more accurate forecast than the analysis of the full trends. It is on this concept that the work of the Detrended Price Oscillator, DPO, is built. The indicator is controversial. There is no clear opinion about that in the community of traders. However, DPO shows phenomenal results in combination with a moving average and a simple trading system. The effectiveness of the strategy keeps at the level of 60-80% of profitable trades in stable markets. You will learn how to trade using the combination of DPO and SMA indicators on the IQ Option platform from this article.
Strategy characteristics:
- Complexity: simple;
- Potential profit: 60-80%;
- Expiration periods: any;
- Preferred assets: currency pairs, shares, precious metals;
- Indicators used: DPO, SMA.
How to activate the desired indicators
Click on the indicator icon and scroll through the list of tools until you see the DPO. Select this indicator. It should appear in the list of active tools.
The indicator shows the highest efficiency in the periods from 14 to 21. The author does not recommend to leave this range, as the accuracy of the indicator will decrease. If you trade on options with an expiration time of 15 minutes, put the maximum allowable value of 21. You can experiment on short time intervals, but do not go below the 14th period. Recommended parameters:
- Less than 5 minutes – period 14;
- 5 minutes – period 16;
- 10 minutes – period 18;
- 15 minutes or more – period 21.
Open the MA (moving average) indicator. Leave the default values and activate the tool by clicking “Apply.”
Two curves should appear on the chart. The yellow line at the bottom of the screen is the oscillator. The red line is the moving average. If necessary, the color may be changed at the indicator setting stage.
Trading Strategy Rules
If the price is above the moving average, and the curve of the DPO indicator crosses the zero mark from the bottom upwards, it is necessary to open the option on price rise. If the situation is opposite (the moving average is higher than the price, the DPO curve crosses the zero mark from the top downward), open the option on price cut. If the graph doesn’t fit under one of the two scenarios, record the result.
Trading strategy work on a real example
Let’s check the trading system on the EUR/NZD currency pair. Set the 15-minute expiration period, activate the indicators in accordance with the rules (21 DPO period, standard SMA settings), and analyze the chart.
As we can see, the price goes for the moving average, and the curve of the DPO indicator crosses the zero mark from the bottom upwards. We agree with the rules of the strategy and understand what should be put on raising the price. Open the deal.
We look at the chart in 15 minutes. As you can see the price has risen steadily, therefore we get our profit. Let’s open some more deals and look at the statistics to see if the trading strategy works.
As we can see, only 2 deals from 12 open ones, closed in negative. The trading strategy based on the moving average and the DPO indicator is working.
A few tips in conclusion
- Strictly adhere to the rules so that the strategy with the indicator Detrended Price Oscillator worked effectively. Open an option only if the conditions on the market match the template;
- Don’t take risks. Don’t open a deal for an amount that exceeds 2% of your capital;
- Remember that no trading strategy gives 100% of the result. Some transactions are always closed in negative;
- Experiments with connecting additional indicators and changing periods are conducted exclusively on a demo account.
Don’t forget to test other trading strategies given on our website. Using different approaches for trading in the binary options market will significantly increase your skill. After a while, you can create your own strategies, and combine different templates into one. We recommend you to check out a simple five-minute strategy, which brings up to 80% of successful transactions.
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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