What is the DeMarker indicator?
The DeMarker (DeM) indicator is an indicator that uses peaks and troughs that incorporates the SMA formula to measure price volatility. Assess whether the market has bought a lot or sold a lot.
The advantage of the DeMarker indicator
About the author of the indicator, Tom DeMarker is a famous technical analyst in the world. He has created a lot of tools for technical analysis and they are being widely used. The DeMarker indicator is created when Tom DeMarker is researching market needs, DeMarker indicators show the demand for buying/selling of the market, the loss of momentum of the trend, the moment the price changes the trend, the level of risk when entering the order. This will help increase the accuracy of the decision to the trader.
DeMarker calculator formula
DeM = SMA (DeMax, N) / (SMA (DeMax, N) + SMA (DeMin, N))
- SMA (Simple Moving Average) is a moving average indicator which is the basic Moving Average indicator.
- N is the number of sessions in the SMA formula. You can see how to calculate SMA and how to use it via the article https://traderrr.com/simple-moving-average-sma-define-and-how-to-use/.
- DeMax is the difference between the current peak and the previous peak but if the current peak is lower than the previous peak, DeMax is equal to 0.
- DeMin is the difference between the current bottom and the previous bottom but if the current bottom is higher than the previous bottom, DeMin is equal to 0.
How to use the DeMarker indicator
The DeMarker indicator ranges from 0.0 to 1.0. DeMarker chart has three lines are 0.3, 0.5, and 0.7 which separate three sector areas of the strength and weakness of market demand.
- From 0 to 0.3 is the oversold area, the high possibility that the price will change direction from decreasing to rising.
- From 0.7 to 1 is the overbought area, the price is likely to reverse from up to down.
- The oscillator is in the 0.3-0.7 zone, which is an unclear signal. Traders should not trade in this area.
Buying/selling signals when using the DeMarker indicator
Stable DeMarker line
When the DeMarker is fluctuating but still between 0.3 and 0.7, it means the price area is in a stable phase. You should not risk taking part in trading at this time. Because right now, the market dynamics not only show that prices are in balance but also cannot be predicted.
When the price is over 0.3 or 0.7, this means the market is overbought or oversold.
The indicator hits the overbought/oversold point
This is a signal almost always true that the price trend is developing towards the current direction. You will get the following signals:
- The DeM line rose sharply to reach 0.7 and went up, which means that the price may rise at this time.
- The DeM line dropped sharply to reach 0.3 and went down, a sign that the price is going down right now.
- The DeM line plummeted to hit 0.7 and descend, it is likely that the price is about to peak and will reverse
- The DeM line rose sharply to reach 0.3 and went up, showing that the market price is showing signs of reversing from decreasing to increasing.
Use in combination with other indicators
Although the DeMarker indicator is a useful tool, it is not perfect. It is best used in combination with other tools such as RSI, CCI, Williams%, and other tools to make trading decisions.
Of course, there are no best tools or strategies, but using the DeMark indicator as part of strategies such as the Fibonacci pivot point, Camarilla pivot point, and DeMark analysis which can reduce risk of loss while improving your market experience.