DeMarker Indicator – What It Is & How to Trade with It

DeMarker Indicator – What It Is & How to Trade with It

What is the DeMarker Indicator?

The DeMarker Indicator (DeM) is a technical momentum oscillator developed by Thomas DeMark to measure demand for an asset and identify potential market tops and bottoms. It compares the current price action to previous price movements to determine if a trend is weakening or strengthening.

The DeMarker Indicator is calculated using the following formula:
DeM = SMA(DeMax) / (SMA(DeMax) + SMA(DeMin))

Where:

• DeMax = Current High – Previous High (if current high > previous high, otherwise 0).
• DeMin = Previous Low – Current Low (if current low < previous low, otherwise 0).
• SMA = Simple Moving Average over a chosen period (default is 14).

Key Features of DeMarker Indicator

• Identifies overbought (above 0.7) and oversold (below 0.3) conditions.
• Helps detect trend reversals and momentum shifts.
• More sensitive to price action than traditional oscillators like RSI.

How to Use DeMarker Indicator in Forex Trading

1. Overbought & Oversold Strategy

Traders use DeMarker levels to spot potential reversals:

• Buy Signal: When DeM drops below 0.3 (oversold) and moves back up.
• Sell Signal: When DeM rises above 0.7 (overbought) and moves back down.

Trading Tip: This strategy is most effective in ranging markets, where price oscillates between support and resistance.

2. DeMarker Divergence Strategy

Divergence between price and DeMarker can signal potential reversals:

• Bullish Divergence: Price forms a lower low, but DeMarker forms a higher low (buy signal).
• Bearish Divergence: Price forms a higher high, but DeMarker forms a lower high (sell signal).

3. DeMarker Trend Confirmation Strategy

DeMarker can be used to confirm trend strength:

• Above 0.5: Indicates bullish momentum.
• Below 0.5: Indicates bearish momentum.

4. DeMarker with Moving Averages

Pairing DeMarker with a moving average (e.g., 50 EMA) can help refine trade signals:

• Buy when: DeM crosses above 0.5 & price is above the 50 EMA.
• Sell when: DeM crosses below 0.5 & price is below the 50 EMA.

Pros and Cons of Using DeMarker Indicator

✅ Pros:

• More responsive to price changes than RSI.
• Helps identify trend reversals early.
• Works well in both trending and ranging markets.

❌ Cons:

• Can produce false signals in choppy markets.
• Requires confirmation from other indicators for accuracy.

Final Thoughts

The DeMarker Indicator is a versatile momentum tool that helps traders spot overbought/oversold conditions, trend reversals, and market momentum shifts. When combined with other technical indicators, DeMarker enhances trade accuracy and decision-making.