The DeMarker indicator, one of the indicators that is paid attention to while making a trade decision regarding the financial assets, is in the Oscillator category. With this indicator which was created by Tom DeMarker, you can see the overbought and oversold zones and reach the buy-sell signals through the reference levels as well.
The indicator, which is created by taking the 14-period moving average into account takes 0.3 and 0.7 levels as a reference. Although there is a significant similarity with the RSI indicator, it can be said the signal process of this indicator is more rapid than the RSI indicator for shorter-term solutions.
In order to reach the DeMarker indicator in the Metatrader platform, you can respectively click on ToolBar- Insert- Indicator, then on Oscillator.
Before adding this indicator to the platform, you can revise or make the number 14, the standard, and the reference levels of 0.3 and 0.7 in the “Levels” section return of which we need to be followed, in line with how many averages of prices must be taken suitable to the financial asset that is to be traded. However, in the training, such change won’t be made and the standard pattern will be followed.
The Positive Or Negative Condition of the DeMarker Indicator!
One of the most essential things to pay attention to while making a trade decision for a financial asset is the reaction that will occur depending on the levels of 0.3 and 0.7. If the DeMarker indicator is above the 0.7 level, it is OVERBOUGHT. If it is below the 0.3 level, it is OVERSOLD. A financial asset being in the overbought or oversold zone might be a signal for a possible return, however, you shouldn’t hurry for such a return solely based on this.
*** When the DeMarker indicator returns from the oversold zone and goes above level 0.3 or makes a return from level 0.3 or its vicinity, the positive pricing behavior regarding the asset might grow stronger. With this, a possible exit request towards the reference level of 0.7 might keep the agenda busy.
*** When the DeMarker indicator returns from the overbought zone and goes below level 0.7 or makes a return from level 0.7 or its vicinity, the negative pricing behavior regarding the asset might grow stronger. With this, a possible regression request towards the reference level of 0.3 might keep the agenda busy.
Important Information: In theory, it has more advantages to take a position by the trend in the related signals to be able to get maximum advantage, and minimum risk in the trade systems which are created according to the levels of 0.3 and 0.7. This means when there is a negative trend view, the indicator giving you the buy signal can cause the current risk to increase. Of course, in the in-trend arrangements, anti-trend positions can be an important opportunity for gain. Nevertheless, market psychology may prevent you from managing the risk properly. For that reason, taking a more active position in the direction of the trend and making these decisions with the help of more than one auxiliary tool is important in order to minimize your risk.
DeMarker – Divergence!
The inconsistency between the asset pricing and the Oscillator indicator, which helps us see the overbought and overbought zones might be on the agenda in some periods.
The concept elaborated as divergence is explained as the positive or negative signals according to the reference levels of 0.3 and 0.7 not being supported by the asset price.
This section which is considered as Positive Or Negative incompatibility, our main focus point is the asset price. The related incompatibility removes the buy-sell signal until the price and the indicator are compatible.
If the Oscillator indicators which help us see the overbought and oversold zones are used alone, the incompatibility times will affect trade performance negatively. Thus, no indicator should be used alone.
When we analyze the graph shared below, even though the downward trend view of the DeMarker indicator is significant, the upward movement of the asset on the pricing side allows us to see the incompatibility clearly. In this process, even though the focus point is the price itself, after a while, the price will become compatible with the indicator. In a situation like this, you should not take place in the incompatible areas or you need to support your current strategy with the auxiliary tools to have a minimum error margin. As with every indicator, this indicator shouldn’t be used alone while creating a strategy.