Detrended Price Oscillator (DPO) in FX Replay

The Detrended Price Oscillator (DPO) is a cyclical analysis tool included in FX Replay that helps traders detect short-term price cycles by removing the longer-term trend component. Rather than tracking direction, DPO focuses on isolating swing highs and lows and identifying repetitive price behavior over time.

How It’s Calculated

• Choose a period (e.g., 20 or 25).
• Calculate a Simple Moving Average (SMA) over that period.
• Shift the SMA left by (n/2 + 1) bars.
• Subtract the displaced SMA from the closing price.

The result is the DPO value, plotted to oscillate around a central zero line.

Interpreting DPO in FX Replay

• Above Zero: Price is above its short-term average → potential bullish strength.
• Below Zero: Price is below its short-term average → potential bearish weakness.
• Crossing Zero Line: Could suggest a change in directional bias.
• Peaks/Troughs: Used to estimate market cycle duration or signal short-term turning points.

Strategy Tips

• Works well in sideways or range-bound markets.
• Combine with trend indicators (e.g., EMA, Bollinger Bands) for structure confirmation.
• Overlay with RSI or other oscillators to filter noise and refine signals.
• Useful for timing entries and exits around known short-term cycles.

Example Use Case in FX Replay

If the DPO crosses above zero while price also breaks above resistance and volume increases, that convergence could suggest the start of a new short-term uptrend worth backtesting.

Limitations

• DPO is not ideal in trending markets unless used alongside trend filters.
• False signals are possible during choppy conditions.
• Always customize the DPO period to your strategy and asset class.

Want help integrating DPO into a swing-trading backtest layout or layering it with structure filters? I’ve got you covered.