Indicators: DeMarker (DeM)
The DeMarker indicator named after Thomas DeMark is a momentum oscillator very similar in nature to the Relative Strength Index (RSI) developed by Welles Wilder. By comparing inter-period price maxima and minima the DeMarker indicator attempts to gather information about price movements to help determine the underlying trend strength and identify over-bought/sold trade conditions. One of the main benefits of the DeMarker indicator like the RSI is that they are less prone to distortions seen in indicators such as the Rate of Change (ROC), which are introduced by erratic price movements at the start of the analysis window which can cause sudden shifts in the momentum line even when the current price is little changed.
The Default time span for the calculation of the DeMarker indicator is 14 periods. The overbought and oversold lines are typically drawn at 0.7 and 0.3, respectively. Longer time spans in the calculation will result in shallower swings in the oscillator and vice versa, accordingly traders may wish to construct narrower overbought and oversold lines for longer time periods. DeMarkers based on short time spans experience greater volatility and are more suitable for indicating overbought and oversold conditions, whereas longer time spans with more stable trajectories are better suited for constructing trend-lines and analyzing price patterns.
Traders should look to go long when the DeMarker falls below 0.3 and rises back above it or where there is a bullish divergence with price where the first trough is below 0.3. Traders should look to go short when the DeMarker rises above 0.7 and falls back below it or where there is a bearish divergence with price where the first peak is above 0.70. Failure swings (see RSI for example of a failure swing) strengthen other signals.
Trade Signals- Trending Markets
Traders should look to go long during an up-trend, when the DeMarker
falls below 0.4 and rises back above it and go short in a down trend
when the DeMarker rises above 0.6 and falls back below it. Traders may
wish to take profit on divergences or exit using a trend indicator.
Traders should avoid selling/buying at overbought/oversold levels in
strongly trending markets as subsequent periods of sideways trading can
return the oscillator to more normal levels without any material
favourable movement in the direction of the trade.
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DeMarker (DeM):
Demarker technical indicator (DeM) is based on the comparison of the period maximum with the previous period maximum.
If the current period (bar) maximum is higher, the respective difference between the two will be registered. If the current maximum is lower or equaling the maximum of the previous period, the naught value will be registered. The differences received for N periods are then summarized. The received value is used as the numerator of the DeMarker and will be divided by the same value plus the sum of differences between the price minima of the previous and the current periods (bars). If the current price minimum is greater than that of the previous bar, the naught value will be registered.
When the indicator falls below 30, the bullish price reversal should be expected. When the indicator rises above 70, the bearish price reversal should be expected.
If you use periods of longer duration, when calculating the indicator, you’ll be able to catch the long term market tendency. Indicators based on short periods let you enter the market at the point of the least risk and plan the time of transaction so that it falls in with the major trend.
Author: MetaQuotes Software Corp.