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Understanding the DeMarker Indicator & How to Trade It

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Written by Timothy Sykes
Updated 9/17/2023 14 min read

The DeMarker indicator (DeM) is a technical analysis tool used to assess the directional trend of the market by comparing recent maximum and minimum prices to the previous period’s equivalent price.

If that sounds confusing, don’t worry. You’re not alone.

A lot of the jargon in the stock market is basic knowledge. It just has intimidating names.

Trust me, I taught myself all this stuff when I was in college studying philosophy. That’s right, I’m not a math whiz. I wasn’t even a finance major.

I’ve been trading for over 20 years now. I have over $7.4 million in trading profits. And I don’t have a single degree that indicates I should know what I’m doing.

That should encourage you … anyone can do this!

Heck, one of my most recent millionaire students, Bryce Tuohey, was described by his friend, Matt Monaco, as being far dimmer than the brightest bulb … if you get what I mean.

Of course, I’m joking around a little, Bryce is a good guy. And he can take the joke now that he’s a millionaire!

By the way, I’m always looking for my next  student. They’ve all come from the Challenge. Maybe you’ve got what it takes …

>> Apply for the Trading Challenge <<

I’m a good teacher. An even better teacher than a trader.

And by the end of this article, I’m sure you can teach any of your friends and family about the DeMarker indicator and its use in trading volatile stocks.

Here’s everything you need to know …

What Is the DeMarker Indicator?

The DeMarker indicator is a comparison tool. It contrasts the highs and lows of an asset’s price to determine overbought or oversold conditions in the market.

It’s not limited to stocks; this oscillator finds its place in forex trading, commodities, and more.

Created by Thomas DeMark, a name renowned in the trading industry, it has stood the test of time. It offers a look into price direction, helping traders gauge potential reversals.

Whether you’re bullish or bearish, understanding this indicator can add value to your trading strategies.

Understanding the DeMarker Indicator

The DeMarker indicator is a critical tool used in trading various instruments, guiding traders to recognize potential uptrends and downtrends. It helps clients identify opportunities and offers services for making educated trading decisions.

With its diverse variants like Demmin and Demax, the DeMarker indicator strategy enables precise risk management, gauging risks and potential loss.

Understanding this indicator involves more than just the English language; it involves comprehending complex mathematical concepts like oscillators, MACD, and Relative Strength Index.

Leverage this information to define your position, manage your funds, and take advantage of opportunities.

How Is the DeMarker Indicator Calculated?

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Understanding how the DeMarker indicator is calculated can seem complex at first. It involves calculations based on the highest highs (DeMax) and lowest lows (DeMin) over a given timeframe.

The formula takes into account price direction, highs, and lows, all vital to technical analysis.

The Demarker (DeM) is the sum of certain values, often an SMA, divided by a specific range. By understanding these equations, you open doors to opportunities, aligning your trades with market trends.

It’s not about getting lost in numbers; it’s about finding the path to profit.

What Does the DeMarker Indicator Show?

The DeMarker indicator paints a picture of potential price reversals. From divergence to convergence, it offers a lens into market momentum.

In a stock market ripe with volatility, recognizing these signals can be key.

Are you looking at bullish or bearish trends? The DeMarker Indicator provides insights into both.

By examining price action, it can reveal periods of price exhaustion, offering hints at potential reversals. It’s not a crystal ball, but rather a well-calibrated instrument in a trader’s toolkit.

The DeMarker Indicator Formula

Understanding the DeMarker indicator formula isn’t merely an academic exercise; it’s about knowing the tool at hand. With Demax, Demin, Demmax, and other elements in play, it helps translate price data into valuable insights.

The oscillator family, including RSI, Moving Averages, and the DeMarker indicator, is built on mathematical equations.

And the crazy thing is … oscillators aren’t even my main indicator. Watch the video below for my favorite trading indicator …

It’s not about the complexity of the formula; it’s about its application. Whether it’s spotting price trends or detecting price turns, understanding this equation guides the way.

The Validity of DeMarker Indicators

The world of trading is filled with indicators, each claiming to be the ‘one.’ But the validity of the DeMarker indicators lies in their proven track record and wide acceptance by industry experts and brokers alike.

They’re not just about buying or selling; they guide risk management and offer insights into overbought or oversold territories.

From currency trading to investing in ETFs, these indicators have earned their place. Trust them, but always with a keen eye on the market and a firm hand on your strategy.

How to Plot the DeMarker Indicator on Your Charts

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Plotting the DeMarker indicator on your charts is like plotting a course through unfamiliar territory.

With tools like Bollinger Bands® and the convergence of various levels, you create a boundary for effective trading.

Understanding how crossovers work with this indicator requires speed and precision, utilizing every point of data. Clients seeking this service can take advantage of demo accounts to hone their skills without risking real money.

Ensure you understand the relationship between DeM and SMA, as it’s vital in plotting the DeMarker indicator.

The content provided on various trading sites is an excellent example of how to master this strategy, complete with advice and news to support your trading journey.

Here are a few different trading platforms to choose from …

How to Use the DeMarker Indicator in Tradingview

Tradingview, a platform known to many, offers a menu of tools, and the DeMarker indicator is no exception.

It’s about selecting the right line or bar that aligns with your trading strategy. Adding it is easy; using it effectively is where skill and experience come in.

How to Use DeMarker Indicator in MetaTrader 5

MetaTrader 5, a platform chosen by many for forex trading, offers the DeMarker indicator as part of its series of tools.

Whether you’re a newbie or experienced, it provides insights into price trends and reversals. Utilize it as a guide, but remember, a platform is just a tool; your mind is the strategy.

How to Use DeMarker Indicator in MetaTrader 4

MetaTrader 4, a sibling to MetaTrader 5, offers similar features but with slight differences.

Utilizing the DeMarker indicator here involves understanding the combination of lines and histograms that resonate with your trades. It’s not just a platform addition; it’s an asset that can bring results.

How to Use the DeMarker Indicator For Different Traders

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Whether trading bitcoin, stocks, or forex, different types of traders use the DeMarker indicator strategy differently.

The various instruments available require a keen understanding of MACD, Bollinger Bands®, and the Relative Strength Index.

The different trading territories have their biases and areas of concern. The reason to choose one strategy over another depends on the …

  • Trader’s position
  • Amount at risk
  • Order of execution
  • Desired levels of support

The conclusion here is that this indicator provides a performance curve suitable for various trading styles.

How to Use the DeMarker Indicator for Day Traders

Day traders live in a world of speed and change. The DeMarker indicator provides that edge, allowing traders to spot reversals and momentum in a heartbeat.

By analyzing price bars and setting boundaries, it’s more than a tool; it’s a hand steering through the chaos of the market.

Day trading requires a multifaceted approach, and the DeMarker indicator is just one piece of the puzzle.

A lot of trading software doesn’t even have up-to-date information to display in an indicator. The DeMarker tool is useless if all the data is 10-20 minutes late. Sometimes I hold shares shorter than that …

That’s why I helped create the StocksToTrade software. It’s optimized for small-account traders that want to profit off of the most volatile stocks in any environment.

>> Try a 14-day trial of StocksToTrade for $7 <<

The Directional Movement Index (DMI) is another valuable tool that can help day traders gauge the direction and strength of a trend

By understanding how to use the DMI indicator in conjunction with the DeMarker indicator, traders can create a more nuanced and effective day trading strategy.

To explore the DMI indicator and how it can be applied to day trading, you can read my detailed guide on the DMI indicator.

How to Use the DeMarker Indicator for Swing Traders

Swing traders find value in the DeMarker indicator’s ability to identify longer-term trends. It’s not just about highs and lows; it’s about understanding market dynamics.

It’s an instrument that provides insights, guiding through price actions and aiding in risk management.

Swing trading involves holding positions for several days or weeks, making it essential to identify the start and end of a trend accurately.

Along with the DeMarker indicator, the Aroon indicator can be a powerful tool in a swing trader’s arsenal. It helps in detecting changes in trend strength and direction.

If you’re interested in incorporating the Aroon indicator into your swing trading strategy, you can learn more about how to use it effectively in my guide on the Aroon indicator.

How to Use the DeMarker Indicator for Scalpers

For scalpers, every tick counts, and the DeMarker indicator is designed for this high-octane world. From price direction to signal accuracy, it offers a range of data crucial for scalping.

It’s more than numbers; it’s a real-time guide to opportunities, ensuring that even in a world where things change in a blink, you’re never left behind.

Scalping requires a combination of tools and indicators to make quick and informed decisions.

While the DeMarker indicator is valuable, the MACD (Moving Average Convergence Divergence) is another essential tool that can be optimized for scalping.

Understanding the best MACD settings can enhance your ability to spot trends and make profitable trades. If you’re looking to refine your scalping strategy with the MACD, you can explore my guide on the best MACD settings to gain a deeper understanding.

Key Takeaways

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  • Understanding the DeMarker indicator: This tool can offer immense opportunity and insight into market trends. Grasping how it integrates with other oscillators is crucial for success.
  • Plotting the indicator: The precise application requires mastery of various concepts, including MACD, levels, and crossovers. A demo account is invaluable for practice.
  • Application for different traders: The choice of using the DeMarker indicator varies among traders, depending on their goals, risk levels, and instruments.
  • Continuous learning: Stay updated with trading news, follow Instagram accounts that offer valuable insights, and never stop seeking advice from industry experts.

It isn’t a silver bullet for your trading plan — but the DeMarker indicator is one of many topics you should learn as part of your trading education!

Trading isn’t rocket science. It’s a skill you build and work on like any other. Trading has changed my life, and I think this way of life should be open to more people…

I’ve built my Trading Challenge to pass on the things I had to learn for myself. It’s the kind of community that I wish I had when I was starting out.

We don’t accept everyone. If you’re up for the challenge — I want to hear from you.

Apply to the Trading Challenge here.

Trading is a battlefield. The more knowledge you have, the better prepared you’ll be.

Do you use the DeMarker indicator in your trading strategy? Let me know in the comments — I love hearing from my readers!

Frequently Asked Questions

How Do You Calculate DeMark Indicator?

Calculating the DeMarker indicator involves a specific formula, understanding highs, lows, and price trends.

The method is a combination of understanding numbers and market insight.

What Is the DeMark 9 Indicator?

The DeMark 9 indicator is a variant of the classic DeMarker indicator. It offers additional insights, working on a different scale but with the same goal of understanding price reversals.

How Accurate Is Tom DeMark?

Tom DeMark, the mind behind the DeMarker indicator, has created a tool proven across different markets.

Its accuracy depends on its application, the timeframe, and the instrument traded. There are a lot of indicators used in Wall Street. Ultimately it comes down to your strategy.

What Is the Definition of the DeMarker Indicator, How Does It Use Base Value, Margin, and Points in Analyzing Prices, and Can You Provide Examples for Trading with It?

The DeMarker indicator is a technical analysis tool defined as an oscillator that compares the most recent price action to previous periods.

The base value is typically set at 0.5, and it fluctuates within a margin between 0 and 1. The indicator calculates points by comparing consecutive bars’ highest highs and lowest lows. Also known as the tops and bottoms of the chart.

It’s used to identify potential price exhaustion and reversals. Like if the market tops and is about to switch directions

When the DeMarker indicator crosses certain thresholds, it provides signals that traders use to anticipate potential price movements.

For example, values above 0.7 may indicate overbought conditions, while values below 0.3 may signal oversold conditions. Understanding this indicator helps traders and others to strategize their positions and capitalize on market opportunities.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”