The DeMarker indicator, also known as DeM, is a technical analysis tool that compares the most recent maximum and minimum prices to the previous period's equivalent price to measure the demand of the underlying asset. From this comparison, it aims to assess the directional bias of the market. It is a member of the oscillator family of technical indicators and based on principles promoted by technical analyst Thomas DeMark.
The DeMarker indicator helps traders determine when to enter a market, or when to buy or sell an asset, to capitalize on probable imminent price trends. It is considered a “leading” indicator because its signals forecast an imminent change in price trend. This indicator is often used in combination with other signals, and is generally used to determine price exhaustion, identify market tops and bottoms and assess risk levels. Although the DeMarker indicator was originally created with daily price bars in mind, it can be applied to any time frame, since it is based on relative price data.
Unlike the Relative Strength Index (RSI), which is perhaps the best-known oscillator, the DeMarker indicator focuses on intra-period highs and lows rather than closing levels. One of its main benefits is that, like the RSI, it is less prone to distortions like those seen in indicators like the Rate of Change (ROC), in which erratic price movements at the start of the analysis window can cause sudden shifts in the momentum line, even if the current price has barely changed.
The DeMarker indicator is composed of a single fluctuating curve and does not use smoothed data. The default time span for the calculation of the indicator is 14 periods, and as the number of periods increases, the indicator curve becomes smoother. Conversely, the curve becomes more responsive with smaller numbers of periods.
This oscillator is bounded between values of zero and one and has a base value of 0.5, although some variants of the indicator have a 100 to -100 scale. The indicator typically has lines drawn at both the 0.30 and 0.70 values as warning signals that a price turn is imminent. Values exceeding either boundary are considered riskier and more volatile, while values within are considered low risk. Generally, values above 0.60 are indicative of lower volatility and risk, while a reading below 0.40 is a sign that risk is increasing. Overbought and oversold conditions are likely to be imminent when the curve crosses beyond these boundary lines.