DeMarker Divergence Forex Strategy
The DeMarker forex trading strategy is forex strategy that utilizes the DeMarker.ex4 forex indicator.
This indicator functions like an oscillator and is able to detect oversold and overbought conditions. It can also be used to trade divergences.
The strategy described today is the divergence strategy with the DeMarker indicator.
MetaTrader4 Indicators: DeMarker.ex4 (default setting), Line tool (default setting)
Preferred Time Frame(s): 30-Minutes, 1-Hour, 4-Hours
Recommended Trading Sessions: Any time the signal appears
Currency Pairs: any + Gold
Buy Trade Strategy Example (click the image for full size)
The strategy is to look for when the indicator starts to diverge from the price action. Usually the price action will eventually correct itself in the direction of the divergence. The key is to identify the divergence and this is done by using the line tool to trace the highs and lows of both price and indicator.
Long Entry Rules:
A long position is initiated when the following indicator pattern is displayed on the chart:
- The indicator line is forming higher lows when price is forming lower lows.
- Look for a candlestick pattern or other trigger for making a long entry. In this example, this was double hammer formation.
Stop Loss for Long Entry: ≥5-30 pips below the low of the entry trigger candles
Exit Strategy/Take Profit for Long Entry:
Knowing when to exit a trade is key and this can be achieved by taking note of the following indicator patterns:
- Price reaches a recent resistance or a reversal pattern appears on price action.
- An arbitrary Take Profit which is at least two times the stop loss can be used. However if there is a reversal pattern that appears before this occurs, use the reversal pattern as a signal to exit the trade.
Short Entry Rules:
For the short entry, the trader should look for the following:
- Price forms higher highs while indicator forms lower highs.
- Watch for a candlestick or other pattern which will form the trigger for the short entry. In the example below, this was a doji candle.
Stop Loss for Sell Entry: ≥5-30 pips above the high of the trigger candle.
Exit Strategy/Take Profit for Sell Entry:
The exit strategy on a position(s) is triggered when the following indicator patterns are displayed on the chart:
- The trader should look to set the Take Profit at an area where a previous support had formed (seen on the chart).
- A reversal pattern can also be used. So look to see if there is a pattern on the chart which will cause price to reverse upwards.
About The Trading Indicators
The DeMarker indicator is an oscillator which can point out divergence signals as well as price extreme points. Reliance on this indicator however requires the trader to know how to apply the line tool to spot the divergence areas.
The key to trading the divergence is to make sure that the trader is able to look for a candlestick pattern which will signal the right time to make the entry after the divergence has appeared.