Most successful traders use the DeMarker indicator because it determines when to enter a market, or when to buy or sell an asset, to capitalize on probable imminent price trends. It is considered one of the most reliable indicators. It is often used in combination with other signals, and is generally used to determine price exhaustion, identify market tops and bottoms and assess risk levels. Although the DeMarker indicator was originally created for daily timeframe it can be applied to any time frame.
Many traders use the DeMarker for clear trading signals, regardless of the direction of the general trend. The terminal of Pocket Option offers the DeMarker in the standard set of indicators.
The DeMarker indicator focuses on intra-period highs and lows rather than closing levels. One of its main benefits is that, like the RSI, it is less prone to distortions.
Settings of the DeMarker indicator
The DeMarker looks like all other indicators. The tool is located directly below the price chart and consists of levels and a signal line.
The American technical analyst Thomas DeMark invented the indicator. It is based on a comparison of price highs and lows for a certain period.
The recommended settings are as follows:
- Moving Average Period: 14;
- Key levels: 0.3 and 0.7.
When you download Pocket Option the DeMarker oscillator is included as one of the indicators that come as standard with the platform.
The DeMarker indicator shows the two zones:
- Above 0.7 – overbought zone;
- Below 0.3 – oversold zone.
Values exceeding either boundary are considered riskier and more volatile, while values within are considered low risk. Generally, values above 0.7 are indicative of lower volatility and risk, while a reading below 0.3 is a sign that risk is increasing. Overbought and oversold conditions are likely to be imminent when the curve crosses beyond these boundary lines.
How to trade with the DeMarker?
Traders often use the DeMarker indicator for trading during flat or weak market.
The algorithm for the oversold zone:
- If the signal line crosses the 0.3 and moves up, buy the CALL option.
The algorithm for the overbought zone:
- If the signal line crosses the 0.7 and moves down, buy the PUT option.
In the case of divergence, acquire the contract in the direction of the indicator.
The expiration period should be at least the time of formation of 2 candles while the timeframe is not important.
As we have seen, the DeMarker indicator is a momentum oscillator with more than one trick up its sleeve. You can use the indicator to confirm if a market is in a trending or non-trending state. If you have identified a trending market, the indicator will confirm the overall directional bias. Most usefully of all, the indicator also gives traders values for buying and selling pressure. With the help of these indications, you can use the DeMarker indicator to see potential temporary reversals within a price trend.