The construction of trend lines
All of the technical analysis ► The construction of trend lines
No matter what type of analysis favors the trader, sooner or later, it still refers to the concept of "trend line". However, despite the widespread use of trend lines in the graphical analysis, there is no consensus on the modalities of their construction and interpretation.
The concept of "trend line" is often interpreted ambiguously and inconsistently. An effective method of selecting two critical points for the construction of the trend line developed by Thomas De Mark - price movements dictated by supply and demand, if demand exceeds supply then prices rise, and vice versa, if supply exceeds demand, prices fall. Graphically, the two trends are depicted descending and ascending lines. The difficulty lies in the choice of the singular points through which these lines.
Lines of supply and demand, made to build from the past to the future, or left to right. Intuition suggested De Marco that we must act on the contrary, as new information is much more important than the old one.
Construction of the trend line is performed from right to left. De Mark has developed simple rules for selecting control points, depending on the daily minimum maximum prices. With the growing trend - point coincides with the daily low, based on the fact that the minima of the previous and subsequent days must be higher than the reference point.
In a downtrend, the point coincides with the daily high, the highs of the previous and subsequent days must be lower than the reference point.
As soon as a new reference point, the trend line is rebuilt.
Later De Mark perfected his technique.
The advantage of De Brand is not limited to the formalization of the rules of construction, they can explain many other price effects. For example, unexpected price breaks and rapid price hikes. The method also makes it possible to achieve significant progress in forecasting price movements by setting the reference point. The idea of constructing trend lines was the fruit of the author's intuition and years of studying the behavior of the price chart. DeMarco's approach does not claim to ultimate truth, but make it possible to eliminate one of the major obstacles to the use of classical methods of linear graph analysis (inconsistency and uncertainty).
Target levels for Demark
Experimenting with tracing the trend lines on the chart, you can find an interesting pattern, draw a straight dissecting prices so that the extreme values are on different sides at an equal distance from it. In this case, the price will be as if attracted and repelled by the resulting line. Although the configuration of the movement of prices is never exactly repeated, prices are often above and below this line. Thomas De Mark is the behavior of prices called the price symmetry.
Using the price symmetry phenomenon of Thomas De Mark has developed principles for determining the price of the projections or the levels where most likely end price movement.
The difference between the minimum price below the descending trend line and the point of the trend line directly above it is added to the price value at the point of breakthrough.
The difference between the maximum price of a rising trend line and the point on the trend line, directly below it, the value is subtracted from the price at the point of breakthrough.
Marc De prefer this method of calculation of price projections, although developed two others, one of which is more complex, and the other more conservative.
And yet, no one technique is not perfect, there are no rules without exceptions. Predicting the movement of prices on the market is no easy task. "I'll be glad if you will treat critically and to my methods," wrote Thomas DeMarco calling not absolute findings.
A break of the trend line is an important signal, but alas, not uncommon and false breakouts. They have long been a stumbling block for traders, forcing many of them to abandon the use of trend lines. Methods to assess the truth or falsity of the breakout, long time did not exist, paid and Thomas De Mark a lot of time to this issue. The research results were unexpected and at the same time simple and logical.
DeMarco opened three breakout qualifier, or pricing model under which, the truth of breakthrough increases significantly. First - a buy signal is true, if the closing price the day before the signal dropped.
Conversely, a sell signal is true if the closing price the day before the signal is increased.
Second - buy signal is true, if the closing price is above the breakout price.
Accordingly, a sell signal is true if the opening price is below the breakout price.
Finally, a buy signal is true, if the sum of the closing prices on the eve of a breakthrough, and the difference between the closing price and the lowest price in the same day, less than the breakout price.
A true a sell signal occurs when the difference between the closing price on the eve of a breakthrough and the difference between the maximum and the closing price on the same day, more than a breakthrough price.
Thomas DeMarco using his chart analysis methods could even predict the events of a purely fundamental plan, such as mergers and acquisitions. He has repeatedly warned of some managers that their businesses can be the object of attack by competitors for this DeMarco and earned the nickname precursor misfortunes.
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