RSI and DeMarker Super Position Strategy

RSI and DeMarker Super Position Strategy

The DeMarker indicator is a modified version of RSI and stochastics. And although the instrument can act as an independent oscillator, the same classic RSI or Stochastic can be used as an additional filter.

DeMarker calculation formula:

  1. The value of DeMax is calculated:
  • If the “Max Price” (the highest upper point of the shadow) of the current candle (1) is greater than the “Max Price” of the previous candle (2), then DeMax = Max (1) – Max (2).
  • If the maximum of the current candle is lower than the maximum of the previous one, then DeMax = 0.
  1. The value of DeMin is calculated:
  • If the “Min Price” (the lowest low point of the shadow) of the current candle (1) is less than the “Min Price” of the previous candle (2), then DeMin = Min (2) – Min (1).
  • If the minimum of the current candle is higher than the minimum of the previous one, then DeMin = 0.
  1. DeMarker = SMA (DeMax, N) / (SMA (DeMax, N) – SMA (DeMin, N)), where SMA is a simple moving average of the received values ​​DeMax and DeMin, N is the number of periods used, that is, candles. In other words: in the numerator – the sum of DeMax values ​​for the period specified in the settings, in the denominator the difference between the total DeMax and the total DeMin.

This strategy uses a derivative form of the DeMarker indicator, which is called the RSI DeMarker Super Position. In a simplified sense, this is the difference between RSI and DeMarker. As practice shows, depending on the situation, RSI and DeMarker, being oscillators, can give opposite results. And this discrepancy may be the basis for analysis.

RSI DeMarker Super Position is a multi-signal indicator, which is presented on the chart as a sequence of lines and a histogram:

  • Four different-period RSI lines that form the average weighted part of the indicator according to RSI (that is, a line that is the average value of 4 RSI lines with different periods). The step for changing the period is indicated in the settings, in the basic version the color of the lines is silver.
  • Four multi-period DeMarker lines. which form the average weighted part of the indicator according to DeMarker (that is, a line that is the average value of 4 DeMarker lines with different periods). The step for changing the period is indicated in the settings. The color of the lines is golden.

The arithmetic average of 4 lines or RSI, or DeMarker is also called signal lines.

  • The weighted average RSI and DeMarker form a common line (superposition). The line is black.
  • Two sliding lines are superimposed on the superposition line, helping to interpret the indications of the final line. The lines are red and blue. 
  • The difference between the weighted RSI and DeMarker is displayed as a histogram below the line graph.

If someone is interested in a detailed description of the possible combinations of all these lines that can serve as a source of signals, write about this in the comments, this is the topic of a separate review. And, since it is easy to get confused in the plexus of RSI DeMarker Super Position lines, and this review is intended for beginners as well, I will go directly to the description of the strategy, where the indicator is displayed in a simplified form.

To simplify the visual search for signals, all additional RSI DeMarker Super Position lines in the settings are removed. Only the weighted average DeMarker line without moving lines is displayed on the chart; the golden color is changed to red (for better visualization). We leave the histogram.

Timeframe – M5, currency pair – EUR / USD. RSI DeMarker Super Position Settings: 

  • RSI = 10. Initial period.
  • DeMarker = 10. Initial period.
  • SPStep = 50. A step that is added to the initial period of RSI and DeMarker to build 4 lines.
  • FastMA = 13. Period of fast-moving, which is superimposed on the line of superposition.
  • SlowMA = 21. The period of the slow-moving one, which is superimposed on the superposition line.
  • Levels: 0.2, 0.5, 0.8.

Conditions for opening a long position:

  • RSI DeMarker for some time was below the level of “0.8”, then for a short period of time (1-4 candles), rose higher and fell lower again. 

At that moment, when the indicator was above the level of “0.8”, we find on the chart the maximum value of the price. Add 3-5 points to it and put a Buy Stop order at this level. Stop loss is long – about 20-30 points. We ensure the trailing deal, by which we exit the market.

The indicator crossed the level of “0.8” for one candle and returned. The average horizontal red line is the setting level of the pending order, which will trigger 8 candles after the signal. Set the trailing, which will automatically close the deal somewhere in the area highlighted by a yellow rectangle.

The next signal (blue oval) also allows you to open a profitable trade. Despite the fact that the price partially rolled down, the stop is long enough to withstand a drawdown, provided that a pending order has triggered. In trailing 10 points, the deal would have been closed somewhere in the area marked with a blue rectangle.

A green oval marks the signal by which a losing trade would be opened, but the profit from the first 2 covers this loss.

Conditions for opening a short position:

  • RSI DeMarker for some time was above the level of “0.2”, then for a short period of time (1-4 candles), went down and rose again. 

In the interval when the RSI DeMarker was below the level of “0.2”, we find the minimum price value, step back 3-4 points and set Sell Stop. Stop-loss – 20-30 points. After the passage at the price of 10 points, set the trailing.

The first deal (yellow oval) would be the most profitable, with a yellow rectangle indicating the approximate closing range. The second signal (blue oval) appeared at the moment when the first deal was not yet closed. Whether it is worth building up a position is an individual decision of a trader, but in principle, this option is quite acceptable. In this case, a little more profit from the market could be taken.

The third signal (green oval) is a rather controversial moment since with a narrow stop it could work or the pending order to open would not work.

A few strategy recommendations:

  • You cannot open a deal if the indicator has not reached the target levels or just touched them. On the second screen, such situations are highlighted in brown rectangles. In the first case, the order would not work for a long time; in the second and third cases, the transaction would most likely close in a stop.
  • You can increase the distance of placing a pending order. Then the profit from a successful transaction will decrease due to a less successful entry, but the loss will be minimized. For example, on controversial signals (green oval on the previous two screenshots), orders simply would not have worked.

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