Scratch just a little beneath the veneer of your foreign exchange rates trading toolbox, and you can find some great indicators over and beyond the usual suspects. The TD Demark indicators would probably qualify as one of the most interesting among your findings – they are a set of trading indicators created by professional trader Tom DeMark over several decades. In this article, we look at three key DeMark indicators and their function.
The DeMark’s Foreign Exchange Rates Indicators
DeMark’s DeMarker I – At heart, this tool is an oscillator much like the Relative Strength Index and the Stochastic in that it aims to pick out overbought and oversold market prices. However, it’s somewhat more cunning than your bog standard overbought/oversold oscillators, since it works in the level of price demand before coming up with a reading. It’s therefore a very potent way of identifying overheated foreign exchange rates, be they bullish or bearish.
Interpreting the DeMark’s DeMarker I follows the same methodology as using the Relative Strength Index, with the 30 and 70 levels being most important in the identification of overbought and oversold price levels. When the DeMark’s Demarker I is at a level of 30 or below, it suggests that prices are likely to be oversold. When the indicator reads at 70 or above, price is in dangerously overbought territory.
There are additional benefits in using the DeMark’s DeMarker I within your foreign exchange rates analysis too – just like it’s Relative Strength Index cousin, it’s worth constructing trendlines on this indicator and being on the look out for any breaks within. Quite often price trendline breaks will follow breaks on the DeMark’s DeMarker I trendline. Finally, DeMark’s DeMarker I may also be used to identify and trade divergences against price action.
DeMark’s Projected Range. An ambitious and interesting indicator, the DeMark’s Projected Range looks to predict the next bars likely high and low point. It does this via a mathematical formula based upon recent open and close prices within the period.
Interpretation Of The DeMark’s Projected Range. The indicator will produce a projected high and low for the upcoming price bar. In the event that this bar starts within the projected price high/low the trader should expect price action to play out within this range. Should the next bar start at a price that is above the high predicted by the DeMark’s Projected Range, the trader should expect there to be a continuing uptrend. When the next bar starts at a price that is below the low of the projected range, the trader must anticipate the price to continue falling.
DeMark’s Range Expansion Index. This can best be described as an oscillator indicator best used to time foreign exchange rates trades. The DeMark’s Range Expansion Index has a scale of -100 to +100, which suggests whether the currency pair is likely to be in overbought or oversold territory. When the readings on this indicator are 45 or above, the currency pair is said to be overbought, while readings of -45 or below relate to oversold conditions.
This collection of DeMark’s foreign exchange rates indicators can be highly useful to identify trends before they form as well as to identify price regions that represent plausible turning points.
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