DeMarker indicator strategy

  • DeMarker indicator strategy

    You may already have a go-to weapon for trading tools, whether it be your own or third-party indicators, or just built-in MT4 indicators. But in this article, we will discuss everything about the DeMarker indicator which is a family of oscillator indicators. Founded by successful trader Tom Demark.

    This indicator can measure the level of demand for a currency pair. And like other oscillator indicators, it can predict overbought or oversold conditions.

    In a further development, it can also be used to estimate risk limits and targets.

    DeM is included in the oscillator family because its physiology forms a curve that fluctuates between zero and 1 (one) values. Several other variants of this indicator also use numbers between 100 and -100.

    DeMarker indicator explained

    Tom DeMarker is the founder and CEO of LCC Market Studies, create the DeM indicator that serves to measure the demand for an asset or currency pair. DeM is another name for the DeMarker indicator.

    The DeMarket indicator is taking on price action recently with prices that have recently closed.

    This indicator is used to find overbought and oversold levels so that traders can assess the level of risk, and the times when prices have started to weaken.

    As an indicator, the DeM oscillator fluctuates between zero and "1" values.

    At basic settings, this indicator has line levels at 0.30 and 0.70 as a warning area.

    If the indicator curve is above 0.70 then the market is considered to be in an overbought condition, conversely, if it is below 0.30 then the market is considered oversold.

    If the DeM curve is above the 0.70 level it is considered risky, and vice versa if it is below 0.30 it is also risky.

    Tom Demark biography

    Tom Demark or complete Thomas DeMark is a capital adviser, pension fund manager, financial markets consulting, book writer, creator of trading indicators, specialized staff of financial institutions, and a financial market researcher.

    DeMark, and has been a special consultant for Steven A. Cohen of Asset Management 72.

    DeMark is a Manager of National Investment Services (NIS), a multibillion-dollar pension fund manager. From 1979 to 1982, he was president of Financial Markets Consulting, a market consulting subsidiary of NIS.

    Many world traders who use the Demark indicator include Oswald Gruebel, former CEO of Credit Suisse Group AG and UBS AG, founder of Point 72 Asset Management Steven A. Cohen, John Burbank, founder of Passport Capital LLC, and Peter Borish, former research director at Paul Tudor Jones Tudor Investment Corporation are some of the users of this DeMark Indicator

    DeMarker indicator formula

    There are several different calculations of the DeMarker Indicator, and all official techniques are confidential belonging to DeMark Analytics, LLC. However, one of the most commonly used index calculations for calculating Demarker is to follow these steps.

    • Select the appropriate time interval "X" (default is 14 days);

    • Find DeMax: (current high price) - (previous period high price). If the value is not greater than zero, DeMax always resulted in zero.

    • Find DeMin: (previous period low) - (current low price). If the value is not greater than zero, DeMin always resulted in zero.

    •  DeMarker Indicator = MovAvg (DeMax) / (MovAvg (DeMax) + MovAvg (DeMin))

    The DeMarker indicator is plotted on a price chart as a single curve.

    Extreme fluctuation in the indicator, such as too high or too low, is to identify possible entry and exit points.

    Sometimes you see indicators plotted on a chart that ranges between zero and 1, and some another limited between -100 and 100.

    The indicator value increases as the DeMax value increases. Since DeMax appears more frequently than DeMin, some traders and analysts believe the DeMarker Indicator is more useful near market prices than lows.

    DeMarker is proportional to the relative strength index, or RSI. Like all price oscillators, they are best used in combination with other technical tools and are not intended to be standalone instruments.

    Function Of Demark indicator

    This De Marker indicator is one of the oscillator indicators which usually indicates prices in overbought or oversold areas. This indicator has level 0 to level 1.

    This indicator is useful to find out if the price is too high or too low. DeMarker has values ​​from 0 to 1.

    If the indicator shows a number above 0.7, the price may have peaked and possible the price will go down.

    Conversely, if the indicator shows a value below 0.3, the price may have reached the bottom, and it is possible to go up.

    DeMarker technical indicator (DeM) is based on the comparison of the current and previous maximum candle bar prices.

    When the maximum price is above the maximum price of the previous candle bar, the value of the difference will be recorded.

    If the maximum price has the same value, then the recorded value is zero.

    Then, when the sum of values ​​from several periods is concluded, the result is the DeMarker indicator number divided by the same value plus the difference between the minimum price of the previous candle bar and the current candle bar. When the minimum price is above the previous price the level is zero.

    When the DeMarker indicator drops below the 0.30 levels, it is predicted that bullish prices will reverse. If the DeMarkerIn indicator rises above level 0.70, then the bearish price is expected to reverse.

    The use of this indicator in the long term makes it possible to see the long-term trends that occur in the market. Indicators with short-term periods make it possible to enter the market with minimal risk.

    How to display the DeMarker indicator MT4

    To display the DeMarker indicator is very easy, we look at the indicator list on the MT4 platform then we click on the Oscillator then there are some indicators

    From top menu Insert>>Indicator>>Oscillator>>Demarker

    Then click DeMarker then right-click, then attach to the chart then the DeMarker indicator parameter will appear, which is period 14. That is the default parameter of MT4, which is period 14. We can set these parameters according to our needs and understanding.

    Demark indicators charts

    How to trade with DeMarker indicators

    As with other indicators, the use of this indicator is not an accurate signal indicator, because market price movements are not what we expected.

    Sometimes sideways, sometimes volatility rises or falls sometimes even movements are not clear.

    Therefore, in its use, other indicators should be included as material for confirmation so that our entry is accurate.

    DeMarker with Moving average

    We may choose one trend indicator, the Moving Average. Because the character of the Moving Average tends to be lagging but this MA indicator is quite accurate in reading the direction of the trend.

    Therefore we combine the Moving Average indicator with the DeMarker indicator. The Moving Average that we use is the Simple Moving Average (SMA) period 14.

    Rules that apply to buy signals:

    • Wait until DeM drops to the oversold area, then wait until the DeM curve returns to disappear above level 0.3.

    • Wait until the price crosses above the 14 SMA, the candlestick must have close

    • If conditions 1 and 2 are fulfilled, you can open long positions.

    • Place stop-loss (SL) in a significant support area.

    • For-profit targets, you can choose to place "take profit" (TP) with a 1: 1 risk-to-reward ratio against SL, or let the price move until it crosses below the 14 SMA.

    Rules that apply to sell signals:

    • Wait until DeM goes up to the overbought area, then wait until the DeM curve returns "crosses" to below level 0.7.

    • Wait until the price crosses below 14 SMA (remember: the candlestick must close).

    • If conditions 1 and 2 are met, you can open short positions.

    • Place SL in a significant resistance area.

    • Place the TP with a 1: 1 risk-to-reward ratio against SL, or let the price move until it crosses back above SMA 14.

    Do not buy or sell if the price has reached the overbought or oversold area of ​​DeMarker but has not crossed the 14 SMA so it cannot be confirmed whether the buy or sell signals. 

    Look at the following picture:

    Determine reversal with Demarker

    Demarker is a momentum indicator, which is a leading indicator, which means that it often gives signals before a trend is formed, usually the longer the period used, the softer Demarker's response to overbought and oversold levels.

    For this, you can adjust the period and timeframe to suit your trading style.

    To look for trading positions with trend reversals, what needs to be considered is when the Demarker line is at an extreme level above 0.70 or below 0.30.

    However, you have to pay attention to how the price behaves when the indicator gives overbought and oversold signals.

    The longer he stays in this zone means that the trend is indeed very strong so this is not the right time to enter a position.

    Watch if the Demarker line has crossed the overbought and/or oversold levels, and the candlestick pattern has signaled a trend reversal.

    In this condition, you can enter the position according to the previous condition.

    If the price is in the oversold zone, it's time to open buy, on the contrary, if it is in the overbought zone, it's time to open sell.

    This is indeed very simple, but you have to be disciplined with stop losses as a preventive from unexpected conditions.

    In the image above, in the EURSD pair, you can interpret how the indicator behaves towards prices.

    Indicators often show overbought and oversold sales but the trend continues.

    Because of this, it is recommended not to use this indicator alone, using an MA is a good strategy when using Demarker.

    Or you can also combine it with RSI which provides a softer signal as a filter.

    Understanding candlestick patterns can also help you trade more efficiently.

    Bottom line

    The DeMarker indicator is like any other oscillator indicator, it will be better when combined with other indicators as a signal filter.

    In the example above, the De Marker indicator is combined with other indicators, namely Moving Average. However, the success rate of a combination of forex indicators is not a tool to achieve 100% profit, but it also depends on your patience and money management in trading.

    One more thing you need to know is that in general trading systems that use moving averages usually don't work well in sideways market conditions. So you must always pay attention to the condition of the market when you will implement this system.

    You can also find trading ideas on the DeMarker indicator Tradingview indicator strategy, using the basis of advanced DeMarker indicator.

    Finally, Tom DeMark's advice for beginner traders? "Always learn, dare to try, and try to always trade objectively with objective technical indicators too."