Most traders who have been working in the financial markets for a long time, follow the rules of trading exclusively in the direction of the trend. This approach is really good in the medium and long term.
However, electronic contracts allow you to make a profit by opening a trade for one minute. And, if you follow the rule “trend is our friend”, you can miss a lot of quality rollbacks.
The DPO Indicator, which is translated as detrended price oscillator, copes brilliantly with the above mentioned situation. It is able to give the trader the necessary information about the current and even the upcoming direction of the price without being tied to the long-term trend.
Despite the fact that DPO is not included in the standard instruments in the terminals of most brokers, you will find it in the “Indicators”menu of Olymp Trade.
Appearance and settings of the Detrended Price Oscillator
As it becomes clear from the name, DPO refers to oscillators which means that it is displayed in a separate window under the price chart. Externally, the instrument represents a moving average moving on a scale divided by zero level.
Initially, the terminal from the broker Olymp Trade set 21-st period of moving. But according to the recommendations of most experts, it is desirable to set the period at 14 for trading electronic contracts on the short term.
To change the above value, click on the pencil icon in the right corner of the indicator window and use the settings on the left.
The essence of the oscillator is that it “filters” long-term trends and smoothes market price values, giving the opportunity to analyze even short-term reversals. As a rule, this advisor is used in conjunction with other tools, however, if you are still quite new, then there is a variant of using the Detrended Price Oscillator without the participation of additional indicators.
Trade contracts of the Detrended Price Oscillator
First of all, DPO is used as a hint about the short-term mood of the players. So, if:
- The signal line is at the top of the scale (above zero), then purchases predominate.
- The signal line is below zero, on the contrary, sales are relevant.
At the same time, traders use additional tools to find an entry point into the market. But, you can also receive signals from the Detrended Price Oscillator. The trading strategy for the latter is as follows:
- The Call contract is bought at the moment of crossing the zero level in the upward direction.
- Put option should be purchased in the reverse situation when the line crosses the zero mark from top to bottom.
Provided that the trade of electronic contracts in this case is conducted on lower time frames (from 1 to 5 minutes), the expiration period will be the time of formation of one or two candlesticks.
Despite its simplicity and abstraction from the trend, the Detrended Price Oscillator can be an extremely useful tool in your arsenal. And, if you are a beginner, you will be able to earn on the market of electronic contracts, exclusively on signals from the best-trend price oscillator.