DeMark's oscillator with an option of setting a fixed timeframe for the calculation of the indicator in the input parameters
Author: Nikolay Kositsin
Indicators: DeMarker (DeM)
newdigital, 2013.09.20 13:17
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
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.