Demarker Indicator: Timing Entry And Exit In Forex – Few read carefully the popular book “The New Science of Technical Analysis” by the successful analyst and trader Thomas R. DeMark. But practice proves: those who have not regretted the time to study his theory will always be at a profit.
The author created his own technical tools even before the era of the computer revolution – at that time, analysts performed most of the calculations by hand. Therefore, the indicator DeMarker can boast of simple logic, but at the same time it effectively evaluates possible price extremes, which is above all profitable for us – active speculators of the Forex market.
Demarker Indicator: Timing Entry And Exit In Forex
Initially, the author (Thomas R. DeMark) wanted to make an optimal oscillator − without the usual drawbacks −, as a result of which its indicator DeMarker offers the minimum delay among all instruments of this type.
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The main idea is to identify not only traditional overbought/oversold zones in the market, but also areas of “price exhaustion” where local max/min are most likely to form.
The calculation mechanism evaluates the direction of the trend by comparing rather cleverly the max/min of the current bar with the corresponding extreme value of the previous bar, and in addition, it performs an additional assessment of the degree of risk. making a deal.
As a result, translation from this “exhausted” region is more reliable. By using longer calculation periods, you can reliably track the long-term trend; short periods allow you to open a trade at a point where the level of risk is low (more information).
The formula for calculating the indicator DeMarker is very similar to the calculation of the well-known indicator RSI.
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First, the price difference between High (parameter DeMax) and low prices (parameter DeMin) for the current and previous bars is calculated. In addition, if the obtained result is correspondingly higher (or lower) than the current values, it is taken into account when calculating the totals.
Next, the total value of the moving average is calculated and divided by the sum of the maximum and minimum moving average values. Thus:
Comparing the extreme prices of several previous periods increases the sensitivity of the DeMark indicator and reduces the risk of making a wrong decision.
From a market perspective, this method of calculation most effectively takes into account the current demand for the property.
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The DeMark indicator line (traditionally oscillators) is located in the additional window below the price chart. The DeM values of the indicator range from 0-1 (or 0-100%), and critical zone levels are 30/70 (20/80 − sometimes used for highly volatile assets such as gold, silver, oil).
Suppose that when the indicator line falls below level 30 − the market is oversold − the price is expected to turn upwards; if it rises above the 70 level − the market is overbought − we expect a downward turn (here − video on indicator).
Apart from the color scheme, only one parameter is used – the averaging period (or the number of bars in the calculation).
If you shorten the counting period, the line will turn out to be more sensitive, but the reliability of the signals will be lost. If you increase the average parameter, the indicator DeMarker shows more global price movement, but the trade signals are late. The market picture becomes completely different after changing the parameter of the indicator.
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DeMark offers a parameter of 13(14) and the author did not leave any tips on trading below D1. However, in the currency market, the H1 time period is considered the minimum period during which the indicator’s DeMarker signals can be trusted.
We remind you: the DeMark indicator confidently estimates the volatility of the asset, so its movement between critical levels can be considered a clear indicator of parity.
That even implied or conflicting indicator signals are considered key points for a rebound (see here).
The main disadvantage of the DeMarker indicator is the large number of false signals in the opposite direction if at the same time there is a strong trend in the market.
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At the same time, if a strong trend is formed, but without stable volatility (price shots + short periods of consolidation), the indicator line «hangs» in the middle zone.
The DeM indicator filters out market noise well, but systems that use the standard Stochastic as an additional tool are considered more stable (see Using Indicators):
If you use DeMarker supplemented with any trend indicator, for example long and short moving averages, you can get excellent leading signals and weed out most of the “false points” (also see the strategy here).
It is not recommended to trade only with the signals of the DeMark indicator or to use it as the basis of a trading strategy. Confirmation from additional oscillators, trend instruments or candlestick analysis is necessary.
How To Trade With Demarker Indicator?
With the help of the indicator DeMarker, you can improve the efficiency of trades in the reversal of the trend to the level of 65-90%, but!
This indicator is characterized by the traditional shortcomings of oscillators: it gives excellent signals in the cycles of the trading range if the cycle of the trading range matches the parameter of the oscillator, and gives false signals if this cycle does not work. match the length of the indicator or if a strong trend starts.
When a “strong” local extreme value is detected, which is confirmed by large market volumes, the indicator can generate signals that are opposite to the current trend, so you need to be careful. The rational use of the DeMarker indicator significantly reduces the risk of any trading strategy.
Once all sides of the indicator are revealed, it’s the right time to try whether it becomes your #1 tool in trading.
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If you want to test the performance of the indicator alone or together with others, you can use the Forex Tester with the historical data that comes with the program.
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Share your personal experience of effective use of the indicator DeMarker. Was this article helpful to you? It is important for us to know your opinion.
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If you need a refund, please visit this link, fill out the feedback form and press the “Submit Request” button, after which our system will process your request and your money will be refunded within a few business days. indicators. This, the DeMarker indicator, is an oscillator offered free of charge to all traders using the MetaTrader4 platform. Other trading platforms also have DeMarker and even some other indicators like DeMarker Sequential. However, these two are almost the only ones that can be found for free and can be used for market analysis. That doesn’t mean the ones you have to pay for are better and show you the exact entry and exit levels. This is not true because as mentioned in other articles here
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