What it means
The indicator was developed by trader Tom DeMark and is an oscillator, which means it moves up and down within a fixed range rather than following the price itself. It looks at each period and asks a simple question: did the market push to a new high, or a new low, compared with the period before?
The more often it pushes higher, the higher the reading climbs. A reading above 0.7 is commonly treated as overbought, meaning buyers may have pushed the price further than demand can sustain.
A reading below 0.3 is commonly treated as oversold, meaning sellers may have pushed too far. These thresholds are conventions rather than laws, and traders adjust them to suit the asset they are watching.
Finance teams rarely use it day to day, but treasury staff, investment analysts and anyone managing a share portfolio or currency exposure may meet it in charting software. It is usually calculated over 14 periods, though shorter periods make it more sensitive and longer ones make it smoother.
The periods can be days, hours or weeks depending on the decision being made. The main nuance is that an overbought or oversold signal is a warning, not a command.
In a strong trend, the indicator can stay at extreme levels for a long time while the price keeps moving in the same direction. Most practitioners therefore combine it with other evidence, such as trend lines, volume or a moving average, before acting.
Like all technical indicators, it only uses past prices and says nothing about a company's profits, debts or prospects. It is best treated as a timing aid that sits alongside fundamental analysis, not a replacement for it.
In practice
Real-world examples.
Example
A portfolio manager at a small pension fund watches a technology share that has climbed for three weeks. The DeMarker reading rises to 0.82, so she delays adding to the position and waits for the reading to cool before buying more.
Example
A treasury analyst at an importer tracks the exchange rate on a currency pair before buying $400,000 of foreign currency. The indicator falls below 0.25, hinting that selling pressure may be exhausted, so he brings forward part of the purchase.
Example
A retail investor looks at a commodity fund after a sharp drop. The reading sits near 0.15, but he notices the price is still making new lows each week, so he waits for confirmation from a second indicator instead of buying immediately.
Formula
Calculation
DeMax = current period high minus previous period high, if positive; otherwise 0
DeMin = previous period low minus current period low, if positive; otherwise 0
DeMarker = Average DeMax / (Average DeMax + Average DeMin), over the chosen number of periods
Suppose a trader uses a 5-period setting on a share. The DeMax values over the five periods are $2, $0, $1, $3 and $0, which total $6, so the average DeMax is $6 / 5 = $1.20. The DeMin values are $0, $1, $0, $0 and $2, which total $3, so the average DeMin is $3 / 5 = $0.60. The DeMarker reading is $1.20 / ($1.20 + $0.60) = $1.20 / $1.80 = 0.67, which sits just below the 0.7 overbought line and suggests buyers are strong but not yet stretched.Case study
Seen in the real world.
Harbour Lane Capital is a fictional investment boutique that manages $30 million for local business owners. In this illustrative story, the team adds the DeMarker Indicator to its weekly review to help time the purchase of a regional shipping stock it already likes on fundamental grounds.
The reading hits 0.85 in the week the stock jumps after an earnings release. Rather than chase the price, the team holds off, and over the next fortnight the price eases back by about 6% while the indicator drops to 0.45. They buy then, at a better entry price. The team also notes that in an earlier month the same signal fired while the stock kept rising, so they now treat it as a prompt to look closer, not as a rule.
Watch out
Common mistakes.
- Treating a reading above 0.7 as an automatic sell signal. In a strong uptrend the indicator can stay high for weeks while the price keeps rising.
- Using it on its own without checking the trend, volume or company fundamentals. A single oscillator gives a narrow view of the market.
- Assuming the 0.3 and 0.7 levels are fixed for every asset. Some assets are more volatile, and traders often need to adjust the levels after testing them on past data.
Questions
People also ask.
What is a typical setting for the DeMarker Indicator?
Many charting platforms default to 14 periods, which balances sensitivity and smoothness. Shorter settings react faster but produce more false signals.
How is it different from the RSI (Relative Strength Index)?
The RSI compares closing prices, whereas the DeMarker compares each period's highs and lows with the previous period. This makes the DeMarker more focused on whether the market is reaching for new extremes.
Can it be used on any market?
Yes, it can be applied to shares, currencies, commodities and indices because it only needs price highs and lows. Its reliability varies by market, so it should be tested on past data first.
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