Tom Demark Trend lines

Tom Demark Trend lines

Trend lines are universally used by almost all traders. They are a common place for all traders to begin their technical analysis. The problem is that the trader becomes too subjective in the trend line drawing. Many traders will be prepared for special occasions, two completely different trend lines based on identical information, depending on his inclination each time, so consistency and uniformity are completely lacking. Not all the trend lines are correct, in the end only one. Through exhaustive research, I have arrived at an efficient method to select the points essential for the proper construction of the trend line. Once learned and applied, trend line analysis is no longer subjective, it becomes quite mechanical. Trend line breakouts are precisely defined and cost projections can be easily calculated.

Supply and demand create price movement. Specifically, should demand exceed supply, price declines, conversely demand should exceed supply, price advances. This is basic economic theory accepted by all merchants that creates the market. In order to illustrate this we build upwards to represent demand and fall in line to represent the bid. The difficulty in building trend line becomes apparent when selecting certain items to select and connect creating a trend line. As in many aspects of trading, human nature has a great tendency to interfere with the proper construction of trend lines.

The first big mistake traders have when creating trend lines work from past to present, in other words run from left to right on the table in their construction of the trend line. This is not true, for this reason alone, the recent price action is more important than historical price activity. After all, the Forex market is the most dynamic market in the world, meaning that it changes all the time. This approach would seem unusual for most merchant at first, but in reality, this is the number one mistake that retailers make when creating trend lines. We are used by children to read everything from left to right, correct? When drawing trend lines we have to learn to read like Japanese do, from right to left. Success in creating trend lines and require attention to detail and pattern of consistency. Inaccuracies and does not care for detail are a common practice in creating trend lines, which will result in more construction of trend lines forcing the trader to hope that one of the trend lines will exactly define the trend.

The first step towards building trend line and most importantly, is the choice of two points to create a trend line. As I stated above, when performed for the construction of trend line we must read like the Japanese, from right to left. All trend line analysis will be performed on the four hour chart compression. By process of elimination of all compression scheme, we found that only four hours of compression is needed. The four hours generates less compression trend line breaks and more accurate projections of cost at any other time of compression. All analysis showed trend lines will be conducted on the four hour compression.



In order to create a trend line, it is necessary to locate two points to create a trend line. In this example, we will talk about demand trend line (uptrend). An uptrend is created when demand exceeds supply, this is where the name of the demand line is derived from. When selecting the points to create a demand line we focus on points of support. True points of support are only those low two candles left of it and two candles to the right of it which lows do not exceed the low will be used. See examples below for reference of true support points.


In the table above, I have marked the two points that will be used to create the demand line, just remember two points are used to create our trend lines. Notice how I refer to the last point of support of the table as item 1, remember we trade the most dynamic market in the world, from right to left is the key. To find the second point of the demand line looking very next point of support that has two candles left and two on the right which does not exceed the low support point.



Once you create a trend line, our next step is to use the trend line to create a bad price projection market opens after the four hour candle chart below the demand line. Note I can only say once the market opens candle, mentioned nothing about close as only the outdoor candle is necessary to create cost projection. The price projection is created in this way, you take the highest created high demand over the line and mark a vertical line. As in the example image below:


Next you need to take a horizontal line and mark where the vertical line coming from the highest high recorded above trend Intersect line with the trend line. What seems complicated at first will be much easier observed and understood in the example below.



Note the two values ​​listed in the table. In the next step we take the difference between the highest recorded high demand over the line and where the demand line intersects the vertical line.

To get a difference of 186 pips. This number becomes our price projection. The final step in the process is the point of application of the price projection. The cost projection would be 186 pips to the downside after four hours of candle, opened under the demand line. That is the key to the technique used, because the price usually reacts quickly to the downside after the candle has opened under the demand line. Valuable pips, would be lost if the trader does not react quickly in many cases.




The price projection is made at the open of the first candle to be opened under the demand line. For visual reasons over a candle, also was closed, but the price projection to be projected immediately after the open of the candle. Remember, we do not need a candle to open and close under the demand line in order to make our price projection, only the outdoors is necessary. In the above example, the value of having an open first candle under the demand line of 1.9010. From this value will be deducted of 186 pip difference received from step 2.

Information cost projection indicated at the bottom of the page. The line was a place 186 pips, the open of the first candle under the demand line. Let's see trade only one candle after entry.



Note the rapid decline in the value of the currency, since it violates the demand line. Let's see if it reaches full price projection.


Notice how the price meet 186 pip price projection. What may seem at first to be a complicated task, after review and practiced by traders becomes very easy and profitable way to trade. Trend line projections give the trader the best overall view of where the market is going. In the above examples we have discussed the demand lines and the downside price projections, since the demand line is broken. In the next section will discuss supply and projections of the head created by the offer in more lines. The same technique is used in both cases, except that I use the line, instead of the line and demand will be the breakout projection of the head rather than shortcomings breakout.