The main merit of Thomas Demark was that he tried to formalize many of the techniques of technical analysis, which is very difficult to describe in mathematical language, that is, show clear and unambiguous algorithm. For example, difficult to formalize the right choice points in the construction of the trend line. If you ask three experienced traders build a trend line on the same chart, we often get three completely different views on the market.
To resolve this ambiguity and vagueness in concepts, Thomas Demark attempted (and quite successfully) to formalize the process of technical analysis.
The movement of prices in the market is usually regarded in retrospect - from the past to the future, and therefore the date listed in the chart from left to right. Accordingly, lines of supply and demand (trend line) are built and placed in the chart from left to right. My hunch is that this is not true. Price movement is currently more important than the movement of the market in the past. In other words, standard trend line should be drawn from right to left so that the right side of the graph are the latest data on the state of the market.
Important reference points offer (supply price pivot points) are determined when a maximum price recorded above which prices did not rise on the day immediately prior to this, as well as following it. Important reference points of demand (demand price pivot points) are determined when the recorded minimum price below which prices did not fall on the day immediately prior to this, as well as following it. These key points are called TD-point (TD - an abbreviation of the first letters of the name and surname of the author technique).
Through TD-point trend line held. Any imbalance of supply and demand is reflected in the chart the emergence of new TD-points. As they become available TD-line is constantly adjusted. Hence the importance of identifying the latest TD-points and build them through the TD-lines.
There are criteria of truth TD-points:
· The reference price minimum should be lower than the closing price of the two bars before its registration.
· Supporting a maximum price must be higher than the closing price of the two bars before its registration.
· To support the minimum price the closing price of the next bar must be higher than the estimated value of the speed of recovery TD-line (TD Line rate of advance).
· The reference price for a maximum closing price of the next bar must be lower than the estimated value of the speed of TD-line falling.
These criteria greatly reduce the number of TD-points and TD-lines, while significantly increasing their reliability.
There are three methods to calculate a price projection of true after a trend line break. They are called TD price projectors.
The easiest way to calculate the price projector 1, but it has the lowest accuracy. It is defined as follows: when there is downward pricing breakthrough TD-line, prices usually continue to move up, at least to the level corresponding to the distance between the minimum price below the TD-line and the price point on the TD-line directly above it, adding to the value of prices at the point of breaking up the TD-line. When there is a price break upward TD-line, prices continue to move down to a level that is calculated as follows: the distance from the maximum price above TD-line to the price point on TD-line directly underneath deducted from the price at the point of breakthrough TD-line down.
TD the price projector 2 a little more complicated. For example, if the downward breaks up the TD-line is selected is not a minimum price below its value, and the intraday low under the TD-line of the day with the lowest closing price. This is then added to the price breakthrough. Very often, the lowest intraday low recorded in the day with the lowest closing price. In this case, the price is identical to the price projector 1 projector