There are numerous trading tools on the Olymp Trade platform that its clients can use and one of these is the DeMark Oscillator. This tool can help traders determine when markets are oversold, overbought, undergoing a trend reversal and starting new trends.
The OlympTrade DeMark Oscillator Explained
Thomas DeMark, a true pioneer and innovator and of trading, created the DeMark Oscillator. DeMark developed a number of strategies and systems that are used to analyze market trends to help understand when reversals will occur and where trends are developing.
The analytical tools he had developed and his analysis were in demand by many eminent trading houses. Although many of his tools are very expensive to buy or are kept secret, some of his tools are available widely for free nowadays. These include the DeMark Oscillator (Tom Demark Indicator), which Olymp Trade provides to its clients at no extra charge.
Some of his other strategies and techniques such as the Demark Trendline Indicator, the DeMark Pivot Point Calculator, and the TD Sequential Indicator are freely available for traders that want to improve their analysis skills.
The DeMark Indicator is used by traders to help determine the best exit and entry points in markets so that they can maximize their profits. The indicator uses previous time frames’ data to show when markets get into oversold and overbought states, similar to what other oscillators such as the RSI (Relative Strength Index) do, but it uses different calculations.
Operation
The DeMark Oscillator displays data by using a group of values ranging from 0 to 1. The indicator’s center or base point is at 0.5, while 0.7 and 0.3 on the indicator indicate where the market is overbought (0.7) or oversold (0.3).
By default, the previous 14 periods are used in the formula to determine these values, but this can be contracted or expanded if required.
Although the indicator does not typically use smoothing, the model used by Olymp Trade smooths the chart by using simple moving averages. This indicator can also be shown as a histogram or a line.
Rather than calculating the closing values of preceding periods, the indicator uses the lowest and highest trading points inside these periods. It then evaluates prices to create a value as follows:
Denominator
- When the current trading low is more than that of the prior period, 0 is used.
- When the current trading low is less than that of the prior period, the difference between the two values is used.
- With the standard setting, this calculation is performed for all the 14 prior periods.
- The Minimum average for the periods thus calculated is added to the Maximum average to calculate the denominator.
Numerator
- When the current trading high is less than that of the prior period, 0 is used.
- When the current trading high is more than that of the prior period, the difference between the two values is used.
- With the standard setting, this calculation is performed for all of the 14 previous periods.
- The Maximum average for the periods thus calculated is used as the numerator.
Calculation
The denominator is divided into the numerator to obtain a value of between 0 and 1.
DeMarker Indicator = Average Max Value / (Average Min Value + Average Max Value)
The process is fortunately simplified by the indicator doing the calculations.
Using the olympTrade DeMark Oscillator to trade
This tool is best used in fast moving markets together with any of the other indicators. It is recommended that it be used to identify new trends as they develop, or to determine pivot points where the trend reverses.
When using the Olymp Trade platform for trading on the Forex or Fixed Time side, identify indicator points above .7 or below .3. An exit or entry point is best in a position where the indicator line travels past those points.
In the image above, the arrows close to the DeMarker Indicator indicate entry points, as these signal downward or upward trends as they cross over into the grey indicator area. The red arrows shown on the price chart indicate price movement soon after the Demark Oscillator’s Sell and Buy entry points.
The indicator will also provide appropriate exit points for positions. As shown below, the arrows highlight the indicator showing the price moving towards oversold and overbought territory, allowing traders to close their positions at a profit.
One Tool Is Not Enough
Although the DeMarker Oscillator is a handy tool, it is not perfect and it is better to use it together with various other tools such as the Williams%, CCI, RSI and other tools when deciding when to trade. It is highly recommended that you learn how to integrate it into your overall strategy.
Although the “best” tool or strategy does not exist, traders that use the DeMark Oscillator as one component of a strategy, while also using tools like DeMark Analysis, Camarilla Pivot Points, and Fibonacci Pivot Points, are able to limit their risk of making losses, while at the same time refining their market timing.