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Discussion of article "Thomas DeMark's contribution to technical analysis"

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MetaQuotes Software Corp.
MetaQuotes Software Corp. 2016.03.28 14:42 

New article Thomas DeMark's contribution to technical analysis has been published:

The article details TD points and TD lines discovered by Thomas DeMark. Their practical implementation is revealed. In addition to that, a process of writing three indicators and two Expert Advisors using the concepts of Thomas DeMark is demonstrated.

It has been argued that technical analysis is both science and art. The reason behind this duality lies in individual points of view of various traders and analysts. For example, the exact same trend line can be drawn completely differently. Such uncertainty is frowned upon in commodities trading where accuracy is the key. Any trader who ever attempted to generate a trend line and discovered that there are few ways to do it, has encountered this problem. Such disorder doesn't contribute to the creation of accurate trading systems that could analyze markets with trend lines. There are some other problems caused by this multiplicity: discrepancy when searching for a local extremum, divergence and convergence based on a trend line that wasn't properly constructed etc.

But not all have accepted such overly flexible approach to technical analysis. For example, Thomas DeMark managed to find an analytical approach to this issue and suggested ways of solving it. In his book called "The New Science of Technical Analysis" he described his methods of a more accurate analysis of a current price situation. In this article, I will tell you about his two findings — TD points and TD lines. By all means, this is not the only subject of the Thomas DeMark's book: he also covers market periodicity, the Elliott Wave Principe and many more.

This article also presents and explains the process of writing three indicators and two Expert Advisors created on the basis of Thomas DeMark's ideas. I believe this article will appeal to many traders, in particular to Forex newbies.

1. TD points

The first invention of Thomas DeMark simplifies the process of finding price extremums for building trend lines. He decided to use a daily chart to find candlesticks whose maximum prices would be higher than maximums of a day before and a day after a defined day (I will be using this word to refer to a candlestick used to determine the presence of a TD point). If this condition is met, then a TD point can be built on a chart based on a maximum price of a defined candlestick. Accordingly, if a minimum of a defined day is lower than a minimum of a previous and following days, then a TD point can be build on a defined candlestick based on a minimal price.

Bullish TD pointBearish TD point

Fig. 1. Bullish and bearish TD points

Author: Ivan Morozov

Daniel Lewis
Daniel Lewis 2016.04.06 16:57  
The implementation of "TD Lines" in this article is not DeMark's method, his TD Lines draws trendlines differently.  DeMark's method draws two types of lines: a "TD Supply" line (connecting the most recent two TD Point Highs that create a line that slants downward from left to right) and a "TD Demand" line (connecting the most recent two TD Point Lows that create a line that slants upward from left to right).  This author shows multiple examples of incorrect TD lines; you do not just simply connect the most recent two TD Point Highs and TD Point Lows.   Additionally, DeMark has multiple upside and downside qualifiers to help you determine if a breakout is a valid signal.    Some TD lines are "disqualified" as a result of this criteria and should not be traded.  DeMark also has methods for determining profit targets; these are not covered in the article.
Alain Verleyen
Alain Verleyen 2016.04.07 11:16  

Level 1 TD lineLevel 2 TD line

Fig. 4. Level 1 TD Lines/ level 2 TD lines.

The figure on the left shows two level 3 TD lines (blue line — minimums, green line — maximums). A line level refers to a level of points used to build this line. The figure on the right shows the level 2 TD lines.

2 errors here. Left is "level 2 TD lines" and right is "level 3 TD lines".

Alain Verleyen
Alain Verleyen 2016.04.07 11:25  

There is a typo on line 10 of "itddots.mq4" indicator. Need to remove the leading "s" to compile this file.

s#property indicator_plots   2
Rashid Umarov
Rashid Umarov 2016.04.07 13:22  
Fixed, thank you!
Sherif Hasan
Sherif Hasan 2016.04.09 18:44  
Nice explained article. I would love to study TD...
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