How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator

How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator
The Detrended Price Oscillator (DPO) is a technical analysis tool designed to remove the influence of the general trend from the price action and make it easier to identify cycles. The DPO falls in the category of momentum indicators, but is also different from MACD. The former is used to identify high and low points within the cycle as well as to estimate its length. Read the full article to learn how to apply it in trading!


What is the DPO?

As can be seen from the name of the indicator itself, the DPO is used to remove the influence of a long-term trend on the current prices. But why would a trader want to do that? Aren’t you supposed to follow the trend? Turns out, sometimes it is easier to estimate the longevity of a trend and forecast an upcoming reversal when trend-related price movements are completely removed from the graph.
How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator
The price chart and the DBO have corresponding highs and lows

What you get in the end is a curve that is quite similar in its shape to the actual price chart. The most noticeable difference between the two is the lack of a major trend on the DPO. In order to use the indicator correctly it is important to understand that the Detrended Price Oscillator is based on the use of a moving average, offset several periods to the left. The indicator will compare past prices with a moving average.


Trading Strategy from Moving Average and the DPO Indicator

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 Set Up DPO in IQ Option?

How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator
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.
How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator
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.
How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator
Open the MA (moving average) indicator. Leave the default values and activate the tool by clicking “Apply.”
How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator
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.
How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator
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.
How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator
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.
How to Create A Profitable Trading Strategy in IQ Option from the Moving Average and the DPO indicator
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.
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