One of the lesser-known indicators that many forex Brokers offers is the DeMarket indicator. This is quite a simple indicator that it’s used in technical analysis to compare the most recent price action to the previous candle price action and attempting to measure whether or not there is a substantial amount of demand for the currency pair. The DeMarker indicator is often used to identify if there is a chance of price exhaustions: if you’re in an uptrend and the DeMarker indicator shows that there may not be as much demand, then there is a real risk for a trend change at that point in time. In this article, you’re going to learn more than just the indicator structure, but you’ll also learn how to incorporate it in your own strategy.
The oscillator normally moves between 0 and 100 levels and unlike most of the other oscillators it doesn’t use a smooth or average set of data to show what’s going on the market, it simply uses rough numbers. One thing that you can use it for is for the riskiness to try to decide whether or not the current price and the riskiness of a trade to go against you. In short traders use this indicator to gauge the oversold/overbought market conditions, the levels of risk and price exhaustion.
The DeMarker indicator is made of two main components:
- The DeMax: Which compares current candle’s high with the previous candle’s high;
- The DeMin: Which compares current candle’s low with the previous candle’s low;
The single line curve that you see on your chart, which is the DeMarker indicator is made up of the moving averages of these two components. Generally, any values above 60 are indicative of lower volatility and risk, while any reading below 40 is indicative that risk is increasing.
How to use the DeMarker Indicator
Any individual indicator on its own is just not enough for picking a trade, so it’s just part of an overall set of tools in the process that you might use when trading. This indicator is suitable to all types of traders and no matter if you’re trading on a short-term basis or long-term it can be a useful tool to incorporate it in your trading arsenal. The DeMarker indicator can be used either to time the market for your entry orders or use it to determine reversal points in the market. There are several ways you can use the DeMarker indicator and here are the most common:
- Measuring Trend Exhaustion;
- Divergence trades;
- Overbought/Oversold Conditions.
- Trend Confirmation.
In the figure below we can see that as GBP/USD price was falling the DeMarker indicator actually had gotten pretty low and at that point it would have warned you that perhaps shorting wasn’t the best thing to do as it was well under the 30 mark, showing that there is a possibility that exhaustion was about to happen and that’s exactly what happened.
One way Forex traders can use the DeMarker indicator is in a scalping environment to see whether or not there is a high likelihood of steadiness in the currency pair and the higher it is, the more likely that’s true, and if it’s steadier than the scalper can go on perhaps the 5 minute chart and scalp the market accordingly. This strategy can be very powerful because in the currency market the DeMarker indicator is just measuring the demand in general, either up or down, so if the DeMarker indicator line is moving upward is showing steady demand to the upside of the market in which case longs are favored, conversely, if the DeMarker indicator line is moving downward is showing steady demand to the downside of the market and shorts are favored.
Like any other oscillators the DeMarker indicator can be used to spot divergence in price as well. Simply put it, divergence means that the price is moving in the opposite direction of the DeMarker indicator and it can signal a reversal of the prevailing trend.
The DeMarker indicator should not be used in isolation, but as an additional tool to make smarter trading decision and to either spot a change in the prevailing trend or to gauge the current trend strength.
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