Every year, traders develop new and new indicators. It’s not a fact that they turn out to be effective and most of them later appear in version 2.0, 3.0, etc. But some take root. And not only take root, but also become the basis for more complex combinational tools. Below is the RSI DeMarker strategy, which is based on the relative strength index known to many and the lesser-known indicator DeMarker. About what he is and how this strategy works, read on.
DeMarker Indicator: New Oscillator for Nontraditional Trading
The DeMarker indicator was compiled by Thomas R. Demark for analyzing overbought and oversold markets. He would have to analyze the demand for an asset, estimating the risk of a purchase, and using this parameter, find possible local maximum and minimum points. DeMarker notes price exhaustion areas in local High and Low locations.
The construction of the DeMarker indicator is as follows: first, the High is compared to the current and the previous candles. If the current High is higher, the indicator captures the difference. If lower, then assigns a zero value. The results obtained for a fixed time interval are summed up and become the DeMarker numerator. The denominator takes into account the sum of the minimum values of the candles by the same principle (if the current minimum is greater than the previous one, a zero value is assigned). Anything below 30 is oversold, 70 is overbought. The longer the analyzed period, the more long-term the trend will be and the less the risk of error.
RSI DeMarker is a compilation of two oscillators, which allows you to compare their behavior with each other. Both of them in different situations can show different, mutually opposite results. What this combined indicator shows:
- four Line RSI, with different periods, form the average weighted part of the RSI (reflected in yellow in the basic settings);
- four Line DeMarkers with different periods form the average weighted part of DeMarker (in the basic settings it is reflected in black);
- weighted average DeMarker and RSI form a “superposition” (reflected in black);
- two “removals” with different periods are superimposed on the “superposition”. To simplify the interpretation of the indicator. Also added a histogram showing the difference between weighted averages.
The above is a general example of a combined RSI DeMarker indicator. There may be some corrections in its different versions.
The strategy below uses only the DeMarker average weighted Line. This is one of the few examples of the use of this indicator. Timeframe – M5, asset – EUR / USD.
The condition for opening a long position is simple: DeMarker temporarily rose above the mark of 0.8 and fell below it. At the mark of the maximum location of the price above the value of 0.8 +3 points we set the delayed Order Buy Stop. Safety stop set a length of 10-30 points. Closing a position on trailing with a length of 10 points.
The condition for opening a short position is the opposite: the indicator should fall below 0.2 and rise above. Deferred Order Sell Stop set at the minimum price value below 0.2-3 points. If it does not work for a long time, remove it. Levels 0.75 and 0.25 can be used – this increases the number of signals, but adds risk.
We think in general terms the essence of the strategy is clear to you. If you have any questions or problems with finding a template, write about it in the comments. Successes to you in trading!