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Daily Market Analysis Daily Strategy Analysis (Live FxAlerts)Forex Indicators – The DeMarker IndicatorMarcello Ducille’s Underground System DemonstrationQuestion & Answer Session

Introduction

What is the Demarker Indicator?

The DeMarker indicator is named after Tom DeMarker who claims to have developed this indicator to overcome the shortcomings of other overbought/oversold oscillators. There are different versions of it  in the market; in some cases the indicator uses 0 and 1 as the maximum and minimum of oscillation, while in others, the typical 0-100 range is preferred.

Courtesy of google images and Investopedia

The DeMarker As Indicator

Any level between 3 and 7 (or 30 and 70 if larger scale is preferred) is regarded as a neutral level characterizing a continuation phase.

If the price is in an uptrend, and the indicator value is also rising, the trend is expected to go on. If we observe an uptrend, while the indicator value is falling, we're faced with a divergence, implying that the uptrend is slowly losing momentum and may suffer an abrupt reversal.

Similarly, when the price is in a downtrend, but the indicator's value is rising, we suspect that the downtrends is weak.

The oscillator and price action are converging, implying an ultimate reversal. If both the indicator and the price are in an uptrend, the interpretation is that the existing price pattern will continue to develop.

Courtesy of google images

Calculate your DeMarker

Courtesy of Google images

The DeMarker indicator is calculated by first determining a DeMin, and DeMax value, which roughly correspond to the high or low of a particular time period. The obtained values are then plugged into a formula which generates the value of the indicator itself.

The Bollinger Bounce

If the high of today is greater than the high of yesterday, we set the DeMin value at the difference of highs of the two time periods (High of today - high of yesterday). Otherwise, DeMax is set to zero. Similarly, if the low of today is lower than the low of yesterday, the difference between the lows of the two periods becomes the value of DeMin (low of today- low of yesterday). If the low of yesterday is equal or lower than today's low, DeMin is set to zero.

Now we plug these two values into the formula below:

DeMark = N-period Moving Average of  DeMax / (N-period Moving Average of  DeMax + N-period Moving Average of DeMin)

Trade the DeMarker Way

Courtesy of Google images

DeMarker Indicator is an oscillator, and it is possible to use with it all the common techniques that are applied to oscillators. The overbought and oversold levels of the indicator are at 0.3, and 0.7, respectively. When the oversold value is exceeded, the expectation is that the prices may soon stop falling. In the opposite case, we anticipate that the uptrend will run out of steam in a short time.

If you remember how the RSI is constructed, you will note that the formulation of the DeMarker indicator is almost the same as that of the RSI with the difference being that the RSI most often uses an exponential moving average, while the DeMarker indicator uses the simple moving average of the prices. But on the whole, both indicators compute the same formula for the min-max values, and interpret them in very similar ways.

In short, it is fair to say that one will never need to create a technical strategy where both the DeMarker and RSI indicators are necessary. They are both oscillators, but beyond that, the great similarity between the two indicators means that using one will generally grant us the information that can be derived from the other.The indicator is most suitable to a ranging market. If it is used in trending markets, it must be used as an auxiliary to a trend indicator, and divergence/convergence configurations must be sought out for its interpretation.

The Bollinger Bounce

Closing Notes

The DeMarker indicator is a solid, simple and reliable oscillator in general, and can be used as a substitute for the RSI when the trader chooses to do so. Arguably, the decision to use any of these two indicators could simply depend on availability.

For either, it is always important to remember the strengths and limitations as with any indicator and utilize your indicator in a consistent well-tested approach.

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