Oscillators are one of the most informative instruments that are used in trading in financial markets. These indicators are able to accurately determine whether the asset is overbought or oversold, i.e. the moment when the main trend can turn around at any time.
This review will describe the DeMarker indicator, which has become widely used not only in the stock and foreign exchange markets, but also in the trading of electronic contracts.
DeMarker appeared relatively recently in the Pocket Option terminal. It is located among the standard instruments for technical analysis.
Purpose and method for constructing the DeMarker indicator
T. Demark, a well-known analyst and practicing trader, first proposed the use of the aforementioned oscillator in trading on financial markets. The author said that the new instrument should filter out market noise to help investors more accurately determine the price state.
It is worth noting that T. Demark approached the target as closely as possible and created an indicator whose signals are more accurate than its closest competitors.
As already mentioned above, DeMarker is an oscillator, so it is located below the price chart in a separate window of terminal.
The trading indicator consists of three levels and a signal line (SMA) on visual appearance. DeMarker is intended to indicate a state of overbought or oversold as any of this type of instrument.
The method of calculating the parameters of indicator is as follows:
- The maximum price for the current period is compared and compared with that for the previous one.
- If the first value exceeds the second, then the difference is fixed. Otherwise, a null value is assumed. This is the numerator.
- The denominator is equal to the sum of the minima for the period.
Fortunately, traders do not need to figure it all out manually. It is enough to set the period in the settings, which are 14 by default.
If necessary, market participant can change this parameter. For example, increase if trader trades on short timeframes or vice versa decrease if user works on long timeframes.
How to trade options with DeMarker?
The DeMarker signals are similar to those given by many other oscillators. There are two key levels: 0.3, which indicates the instrument is oversold and 0.7, which, on the contrary, indicates overbought.
Trader should buy the Call-option should at the moment when the signal line intersections the level of 0.3 upwards.
The trader should buy the Put-option should at the moment when the signal line intersections the level of 0.7 downwards.
The timeframe is recommended to be set equal to the time of the formation of 3 candles in the medium and long-term trade and 2 in the short term tactic.
In addition, despite the high accuracy of the instrument, it is desirable to compare its signals with one of the trend indicators, for example, with the EMA. As trading in direction of the main trend significantly increases chances of making a profit.
DeMarker rightfully earned its popularity among traders. Its signals are highly accurate, and simplicity and accessibility allow even novice traders to include it in their system.