The Demarker indicator also referred to as DEM, is a technical analysis tool developed by Tom Marker. The tool is used to compare the maximum and the minimum prices achieved in the current period with the same prices achieved in a previous period. With these comparisons, the indicator attempts to show direction biases of the market. The Demarker index is useful to traders when determining the overbought and oversold conditions.
Features of the Demarker Includes the following:
• It is an oscillator comprising a single line that ranges between limits of 0 and 1.
• The indicator has a base value of 0.5
• The overbought level is set at 0.7
• The oversold level is set at 0.3
• DeMMAX – It is the difference between the current high and previous high over several specific periods.
• DeMMIN – It is the difference between the current low and the previous low over a specific period.
Calculating Demarker Indicator
The calculation of the indicator includes the following straightforward steps: ( Click this link to access an economic calendar for your trading strategies )
• Pick a predetermined period, X (14 is the standard value, although 8 or 9 are preferred).
• Evaluate DeMax = high- the previous high, if the value is larger than 0, DeMax =0.
• Evaluate DeMin = previous low – low if the value is greater than 0, DeMin = 0.
• DeM = Moving average of DeMax / (MA of DeMax + MA of DeMin)
How is Demarker indicator used
• In the Demarker indicator, the overbought and oversold indicate high and low prices validated by the samples’ previous set.
• Strongly overbought indicates a buying pressure; on the other hand, strongly oversold indicates selling pressure.
How to use the overbought and oversold indicators in understanding what is going on in the market?
The most aspect is to take note of how long the market will remain in the overbought and oversold regions. When making a judgement, call on whether the market is ranging, mild or intense. The amount of time that a market spends in the overbought or oversold regions will give us an insight into whether there is a trend or not. If a market spends a prolonged period in the extreme overbought levels, it shows the trend is upward.
Key takeaways
• Traders use Demarker indicator to time an entry or an exit in a market.
• It is an oscillator predicting short period price actions based on intra high and lows.
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