The DeMarker binary options’ indicator is another tool developed by Thomas DeMark, a well-known professional in a field of the technical analysis. It was published in one of his books. This indicator belongs to the category of oscillators, and its essence consists in the need to search for the overbought and oversold zones.
Description of DeMarker binary options’ indicator
As mentioned above, the Demarker binary options’ indicator is the oscillator, which allows determining the overbought and the oversold zones more accurately. In other words, its main goal is to find minimums and maximums on a chart. In fact, this indicator fixes the zones where the market becomes exhausted. Usually, a market reverses within these zones.
The plotting of this tool’s lines is based on the comparison maximums of the current and the previous periods. The line’s values oscillate between the levels of 0 and 1. As for the overbought and the oversold zones, the levels of 0.3 and 0.7 are set for them additionally.
The calculation of the DeMarker binary options’ indicator is carried out according to the following principle. If the maximum value of the current bar is higher than the maximum of the previous value, the difference between them is taken into account. If the situation is opposite, then the difference between them is not calculated. The same calculation is carried out for the minimums too.
Signals of DeMarker binary options’ indicator
One of the basic signals, which can be used in order to work with the Demarker binary options’ indicator, is the standing of the indicator’s line within the overbought and the oversold zones. Technically, almost any oscillator works with these zones and sends its own signals.
If the indicator’s line crosses the level of 0.7 from down to up, it means that the descending trend is going to form in the market. In this case, it is recommended to buy the Put contracts. As for the Call option, you can buy it when the indicator’s line crosses the level of 0.3 from down to up. This is so because in this case the signal for the beginning of the ascending trend begins to form.
Another way to receive trading signals is divergences. This type of signals is familiar for many traders and is received when the price showings on a chart and the indicator’s line diverge. When the bullish divergence occurs, it is recommended to buy the Call option. And if the situation shows that the bearish divergence forms, then it is recommended to buy the Put option.
You can work with this indicator using the trend lines too. For example, if a trader had plotted the trend line upwards and it was broken by the indicator’s line, then the signal to buy the Put option will appear. This is so because it is most likely that the market will reverse. The same can be applied towards the breakout of the descending trend line on the indicator’s chart. In this case, it is recommended to buy the Call option.
Finally, some chart patterns can be found on the indicator’s line, and they can send the particular signals. For example, it a trader receives the Head and Shoulders, the market’s reverse downwards has to be expected. Therefore, the Put option has to be bought.
The Demarker binary options’ indicator has disadvantages too. For example, as any other oscillator, it works perfectly when the ranges in the market appear. But a trader may encounter serious problems when a trend begins in the market. In this case, it is recommended to use the additional indicators that show a presence of trend.