The IFX-DPO indicator (Detrended Price Oscillator) enables a trader to decide between divergence and convergence on the price chart as well as to determine the exact point of a trend change on the market. IFX-DPO relates to oscillator indicators. Besides, the principle of its using is similar to the one of the Momentum indicator.
DPO = CLOSE – SMA (CLOSE, (N / 2 + 1)), where
SMA stands for simple moving average;
CLOSE stands for a closing price;
N stands for a cycle duration.
IFX_DPO, a computer indicator, is designed to get rid of a trend direction in a price fluctuation. Thus, the indicator makes it easier to identify cycles as well as oversold or overbought levels on the currency pairs’ charts.
On the forex market, long-term price cycles consist of shorter cycles. Analysis of such short-term cycles helps to determine important highs and lows. The IFX_DPO indicator allows a trader to remove long-term cycles’ impact on price movements. Cycles can be estimated by counting the periods between peaks or lows. It is recommended to use the period of 21 cycles to reduce a number of false signals.
In case the DPO line crosses the zero level from bottom to top, it means the trend is about to change from the downward direction to the upward one. Therefore, the time is ripe for buying an asset. Inversely, in case the indicator line crosses the zero level from top to bottom, we should sell an asset because it means that the trend is to change from bullish to bearish.
In addition, using the IFX_DPO indicator, traders can easily recognize divergence and convergence signals.
Parameters of InstaForex IFX_DPO Indicator
IndPeriod = 14
CoutnsBars = 300