DeMarker technical oscillator is used in forex markets to compare current price to price action in the past, according to chosen period and timeframe. Created by T.DeMarker, as a method to determine demand on the market. Similarly others forex oscillators, it indicates overbought and oversold zones that can be used to evaluate trend and pick entry points.
Anatomy of DeMarker forex indicator (DeM)
DeMarker uses fixed maximum of +1 and fixed minimum of 0, it does not use smoothed price for its calculations. Most of the traders are looking at values 0,3 and 0,7 as critical zones signalising either price reversal or trend continuation. Fluctuating DeM curve reaching either of those two zones, signalises either overbought or oversold market.
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Using DeMarker (DeM) forex indicator
DeMarker - great for picking tops in downtrend
Picking tops and bottoms within trend.
DeM is one of the best forex indicators to accurately find overbought and oversold zones. Coupled with technical analysis or trend identifying indicators, DeM is relatively reliable in picking low/high price level that is in accordance with major trend. Similar to oscillators such as RSI or Stochastic, signal is only considered valid once it returns between 0,3 and 0,7 lines. (Forex strategy combining MACD and DeMarker forex indicator)
Divergence at top of the market may signalize trend reversal.
DeMarker can be effectively employed to confirm divergences on forex market. Divergence manifests itself as price creating new high/low in what seems to be a trend continuation. Meanwhile DeMarker fails to draw new high/low. This indicates that trend may be losing its momentum and its more likely to reverse.
Ranging market identification:
DeM with values between 0,3 and 0,7 indicates mostly indecisive and relatively quiet market. DeM values in overbought / oversold zones may be sign of imminent reversal but they can also signalise beginning of new trend.
0,5 Line added to separate uptrend from downtrend
By adjusting indicators sensitivity (period) we can make more effective in finding any of those situations on the market. Higher periods (above 21) are more suitable for trend identification. Lower periods are effective in finding entry point in the trend.