The Demarker Indicator

The Demarker Indicator is a valuable tool for traders seeking to identify potential trend reversals and overbought/oversold conditions in the market.

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2/2/20243 min read

trading chart
trading chart

What is the Demarker indicator

Demarker Indicator, also known as DeM, is a momentum oscillator that compares the most recent price range with the previous price range to determine the strength of a trend. It oscillates between 0 and 1, where values closer to 1 indicate a stronger bullish trend, and values closer to 0 indicate a stronger bearish trend.

Formula

The formula for calculating the Demarker Indicator involves several steps:

  1. Calculate the DeMax (positive price change) and DeMin (negative price change) for each period.

  2. Calculate the DeMax and DeMin moving averages over a specified period.

  3. Divide the DeMax moving average by the sum of the DeMax and DeMin moving averages.

  4. Multiply the result by 100 to obtain the Demarker Indicator value.

The formula can be represented as:

Demarker Indicator = (DeMax Moving Average / (DeMax Moving Average + DeMin Moving Average)) * 100

Use of the Demarker Indicator

The Demarker Indicator is primarily used to identify potential trend reversals and overbought/oversold conditions in the market. Traders can utilize this indicator in the following ways:

1. Identifying Overbought and Oversold Conditions

When the Demarker Indicator reaches extreme levels, such as above 0.7 or below 0.3, it suggests that the market is overbought or oversold, respectively. Traders can use these levels as signals to enter or exit trades.

2. Confirming Divergence

By comparing the price action with the Demarker Indicator, traders can identify divergence patterns. Divergence occurs when the indicator moves in the opposite direction of the price. Bullish divergence suggests a potential upward reversal, while bearish divergence indicates a potential downward reversal.

3. Spotting Trend Reversals

The Demarker Indicator can help traders identify potential trend reversals. When the indicator reaches extreme levels and starts to reverse, it may signal a change in the prevailing trend. Traders can use this information to adjust their trading strategies accordingly.

4. Combining with Other Indicators

The Demarker Indicator can be used in combination with other technical indicators to enhance trading decisions. For example, traders may combine it with moving averages, trendlines, or other oscillators to confirm signals and reduce false positives.

Combining the Demarker Indicator with Other Indicators

Combining the Demarker Indicator with other indicators can provide traders with a more comprehensive view of the market. Here are a few popular combinations:

1. Demarker Indicator and Moving Averages

Traders often use moving averages in conjunction with the Demarker Indicator to confirm trend reversals. When the Demarker Indicator suggests a potential reversal, traders can look for moving average crossovers or price breakouts to validate the signal.

2. Demarker Indicator and Relative Strength Index (RSI)

The RSI is another popular momentum oscillator that measures the speed and change of price movements. Combining the Demarker Indicator with the RSI can help traders identify strong trends and potential reversals more effectively.

3. Demarker Indicator and Bollinger Bands

Bollinger Bands are volatility indicators that consist of a moving average and two standard deviation bands. Traders can use the Demarker Indicator in combination with Bollinger Bands to identify overbought and oversold conditions within a specific price range.

Biography of Tom Demark

Tom Demark is a renowned technical analyst and trader who has made significant contributions to the field of technical analysis. He is the founder and CEO of Market Studies, LLC, a company that provides research and consulting services to institutional traders, hedge funds, and other market participants.

Tom Demark is best known for developing innovative technical indicators and trading systems, including the Demarker Indicator, TD Sequential Indicator, and TD Combo Indicator. His work has gained widespread recognition and is widely used by traders around the world.

Throughout his career, Tom Demark has advised numerous financial institutions and has been a sought-after speaker at industry conferences. He has also authored several books, including "The New Science of Technical Analysis" and "DeMark Indicators."

Tom Demark's contributions to the field of technical analysis have revolutionized the way traders approach the markets. His indicators and trading systems continue to be widely used and respected by traders of all levels of experience.