Forex DeMarker Strategy

The DeMarker strategy uses the DeMarker indicator as a momentum oscillator to grade the demand for security using current prices compared to previously reported prices. It helps trace buy and sell points such as overbought and oversold conditions and is seen in the forex market, especially for reversals and trend changes. Below is an example of how to use the DeMarker indicator in a trading system.

Understanding the DeMarker Indicator
The DeMarker indicator falls between 0 and 1, but overbought and oversold areas are ordinarily placed at 0.7 and 0.3, respectively:

When it jumps above 0.7, the market is overbought and headed to reverse.
When it drops below 0.3, then the market is oversold and about to make a turn.
How the DeMarker Strategy Works
Step 1: Adding the DeMarker Indicator
Most trading platforms carry the DeMarker indicator:

Open the section for indicators.
Pick "DeMarker."
Set the period, usually 14 or 21, which will determine the number of candles taken into account when calculating
Step 2: Identification of Trading Signals
Overbought Signal: When the DeMarker indicator crosses above 0.7 and immediately starts turning down, a sell could be in order. The price is overbought and is likely to be turned down.
Oversold Signal: When DeMarker goes below 0.3 and continues traveling upwards, this forms a buy signal. The price, apparently, is oversold and now likely to move upward.
Step 3: Confirmation of the Signal through Price Action or Another indicator
Utilize another indicator or price action to avoid a false signal. Example:
Employ DeMarker in conjunction with Moving averages like a 50-period moving average to confirm the trend direction.
Look for confirmations of reversals in the overbought or oversold condition at support and resistance levels.
Example Setup
Buy Setup:
Wait for the DeMarker to fall below 0.3 so you see the extreme oversold condition.
Confirm with a bullish candlestick pattern or support level.
Get into a buy position and enter a stop loss below recent lows.
Sell Setup:
Wait for the DeMarker to rise above 0.7 so you see the extreme overbought condition.
Confirmation of bearish price action for a bearish candlestick or resistance
Enter sell position, stop loss above recent highs
Implementing the DeMarker Strategy
Set the DeMarker Period; short periods are more sensitive and long periods will smoothen it out. Experiment with periods. The use of 10, 14, or even 21 might fit one's trading style.
Use along with Other Tools: DeMarker can easily be used in combination with moving averages, RSI, and MACD to generate more confirmations.
Use of Higher Time Frames: To reduce noise, it is always better to use the strategy in a chart that has an hourly or daily period.
Advantages and Disadvantages of DeMarker Strategy
Benefits
Catches Reversals Well: It can find high-probability reversal points.
Less Engaging: The overbought and oversold levels make it rather easy to work with.
Works Great during a Range-Bound Market: It is much more suitable for the sideways markets.
False Signals: Like any oscillator, DeMarker can generate false signals when the trend is strong.
Isn't that Effective in Strong Trends: When the price is moving strongly in one direction, DeMarker may not be effective.
Example Trading Plan
Currency Pair: EUR/USD, GBP/USD, or other majors.
Time Frame: 1-hour chart and higher
DeMarker Setup: Period 14.
Entry Rules:
Go long when DeMarker < 0.3, confirmed by a support in price. Sell short when DeMarker > 0.7, confirmed by resistance in price.
Exit Strategy:
Exit when the DeMarker returns to the middle zone, between 0.3 and 0.7.
Risk Management:
Use stop-loss levels on recent highs and lows.
A minimum of a 1:2 risk-reward ratio should be observed.
This strategy can be used in conjunction with various trading styles, and it's always possible to try it on a demo environment in order to perfect the settings before using them in live trading. Feel free to ask me any questions you might have about any particular aspect of this strategy!