Peuker-Douglas Tool
The second option of the two approaches is the Peuker-Douglas tool.
The Peuker-Douglas tool works by using drop analysis to determine how high up in the watershed the stream network will be developed (Broscoe, 1959). The "Drop Analysis" considers the difference in elevation from the beginning to end of a stream segment and examines the slope or drop through a series of test thresholds.
If the mean stream drop of the estimated first-order streams is significantly different than the mean stream drop of higher-order streams, then the constant drop law is not met and a larger threshold is chosen until the law is met, thus defining the initiation point of streams.
Tool Summary
Inputs
1. Filled DEM
2. D8 flow direction raster
3. Watershed boundary
4. Pour points (optional)
If you do not provide pour points, they will be automatically generated. You should save these automatically generated pour points for review and edit.
Outputs
1. Peuker-Douglas Flow Network (PDFlowNet + inHUC)
2. Pour points (optional, not created if provided by user)
Please note, while the tool is running in the foreground you cannot do anything in your ArcGIS document.
Broscoe, A. J. 1959. Quantitative analysis of longitudinal stream profiles of small watersheds. Office of Naval Research, Project NR 389-042, Technical Report No. 18, Department of Geology, Columbia University, New York.
GeologyCafe
For a more detailed explanation, please view this video (runtime 13:51):