Application Rules of DPO
The primary application of the Detrended Price Oscillator (DPO) is to help traders identify the price cycles of assets. By analyzing the peaks and troughs on the DPO indicator, traders can estimate future buying and selling opportunities. Positive values of the DPO usually indicate that the price is above its moving average, while negative values indicate that the price is below the moving average.

The main application rules of DPO include:
1.When DPO is greater than 0, it is usually considered a bullish market, indicating a buyer's market.
2.When DPO is less than 0, it is considered a bearish market, indicating a seller's market.
3.Overbought and oversold lines can be set above and below the zero axis; when DPO touches these lines, it may indicate short-term price highs or lows.

Application of DPO in Current Financial Trends
In the current financial market, DPO is widely used. For example, considering the progress the United States has made in combating inflation and the possibility of the Federal Reserve slowing down the pace of interest rate hikes, DPO can help investors identify the market's reaction to these macroeconomic changes. Additionally, in the current macroeconomic environment, such as the progress in the U.S. fight against inflation and the potential slowdown in Fed rate hikes, DPO can serve as an important tool for analyzing market reactions and predicting future trends.

Limitations of DPO
While the Detrended Price Oscillator (DPO) is a useful tool for identifying market cycles, it has several limitations:

●No Direct Trading Signals: DPO itself does not provide trading signals but serves as an auxiliary tool to help traders better understand market rhythms.
●Historical Cycles Do Not Guarantee Future Repetition: Although DPO analyzes past price fluctuations to predict future cycles, the length of historical cycles does not guarantee future repetition. Future cycles may become longer or shorter.
●Trend Ignorance: DPO is designed to disregard the overall market trend and focuses on short-term price fluctuations. Therefore, traders need to judge the market trend themselves and decide the trading direction.
●Potential for Continued Price Decline: Even if DPO indicates a cycle bottom, if the asset's price is in a downtrend, this may not signify a good buying opportunity, as prices might continue to fall.
●Inconsistent Peaks and Troughs: Peaks and troughs on the DPO may not move at the same level. Thus, it is necessary to use price charts in conjunction to mark significant peaks and troughs on the indicator.
●Lagging Indicator: Since DPO is calculated based on historical data, it may not immediately reflect the latest market changes, resulting in a certain degree of lag.
●Parameter Setting Choice: The effectiveness of DPO is influenced by the choice of parameters, such as the number of periods for the look-back period. Different settings may lead to different analysis results.

As a tool that removes the influence of long-term trends, the DPO is a powerful indicator for investors to identify short-term market fluctuations and cyclical changes. By reasonably setting parameters and application rules, DPO can help investors better understand market dynamics and make more informed investment decisions. In today's volatile financial environment, mastering the use of DPO is crucial for grasping market trends and mitigating risks.

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