Can anyone explain this indicator from DeMark to me?

Hi,

I got this indicator from a friend and he asked me if I know how to use it.
Does anybody know how to use the small circles and the crosses? Does any cross become a small circle?

It would be nice if somebody could have a look at it or maybe it is already described in the forum but I didn't find anything...

Thank you!

Here are the crosses...

I’m not 100% sure how this works, but here is my best guess. I’ve seen this indicator plot circles and arrows before on MT4 charts, but not crosses. To understand Tom Demark’s work fully, you need to read his book The New Science of Technical Analysis (Wiley & Sons, 1994). The Demark trendlines (terminology: “TD Points” and “TD Lines”) are covered in Chapter 1. I read the book about 5 years ago, and am working from memory here.

The plotted circles are TD (supply and demand) Points and are determined by your entry in the parameter in LevDP.

If, for example LevDP=2, then a TD supply Point is a bar where the highs of the 2 bars either side are lower than the high of the current bar. In other words, in a series of 5 bars, the third bar has the highest high. These are shown as red circles on the chart you posted.

If LevDP=5, then a TD supply Point is a bar where the highs of the 5 bars either side are lower than the high of the current bar. In other words, in a series of 11 bars, the sixth bar has the highest high.

The blue circles are TD demand Points, and are a “mirror image”, i.e. if, for example LevDP=2, then a TD demand Point is a bar where the lows of the 2 bars either side are higher than the low of the current bar. In other words, in a series of 5 bars, the third bar has the lowest low.

If you set the parameter TrendLine = true, then TD supply and demand Lines are drawn on the chart. These connect TD Points according to the rules in Demark’s book. My understanding is that a TD supply Line connects the most recent TD supply Point with the next higher (working from right to left across the chart) TD supply Point, creating a line that slopes downward. A TD demand Line connects the most recent TD demand Point with the next lower (working from right to left across the chart) TD demand Point, creating a line that slopes upward.

When price breaks through the TD Line according to the rules in Demark’s book, a small arrow is plotted on the chart at the bar, and in the direction of, the breakout. An upward pointing arrow is a buy signal (enter a long trade), and a downward arrow is a sell signal (enter a short trade). These arrows are plotted if you set the parameter ShowArrows = true.

If you set the parameter TakeLines = true, horizontal target profit lines are drawn on your chart. The formula behind these is quite complex, and to understand it fully you will need to read Demark’s book.

If you set the parameter HorizontLine = true, horizontal lines are drawn near the breakout area, and are used as the starting points from which the target profit lines are calculated.

If you set the parameter ChannelLine = true, this will draw projected parallel lines to the TD lines, starting from the most recent TD supply Point for a TD demand Line, and starting from the most recent TD demand Point for a TD supply Line.

The ShowBars parameter controls how many bars (from the right of the chart) the indicator will “look back” in order to calculate the TD Points and TD Lines.

The Trend parameter works as follows:
0 = show both TD supply and demand Lines
1 = show TD demand Lines only
–1 = show TD supply Lines only

The other parameters generally control the color and size of the plotted objects.

What I suggest that you do is set the Comments parameter to true, which will display Comments on your chart, giving you more clues as to the results of the underlying calculations, and the objects that are being plotted.

Demark’s method was plagiarized and then modified into the “Mouteki” system, for which you will find a complete topic here, at the top of the Trading Systems forum: http://www.forexfactory.com/forumdisplay.php?f=75
Promoted as a “Holy Grail” system, this generated much interest when first released, but I don’t know how many people actually use it now.

Cheers
David

Hi More

As a further illustration, see the attached chart.

The red comments I have added manually, to illustrate an upside breakout trade using TD supply Points and Lines. Notice how the supply Line is plotted by connecting the most recent supply Point to the next most recent higher supply Point.

The yellow annotations, also added manually, show how the final TP is calculated. A vertical line is dropped to the lowest point between the two connected supply points. Its height is 310 pips in the example. Hence the final TP is projected to be 310 pips above the breakout level. I can't remember how the intermediate targets are calculated: you will need to either reverse engineer the MQ4 source, or read Mr Demark's book.

The downside breakout works exactly in reverse, using TD demand Points/Lines.

Hence this is effectively a counter-trend breakout trading method.

Incidentally, the breakout line (which is the point where the TD supply Line intersects a vertical line drawn through the current price bar) would have been at a different position at the time of the breakout (red arrow), resulting in slightly different TP projections (the dotted red lines).

At a guess, I think the crosses in your chart might represent the most recent potential TD supply/demand Points that were either unfulfilled (didn't have the required number of higher lows or lower highs following the local low/high), or resulted in unrealized breakouts.

David

Thank you very much for your detailed explaination David!!
I study it beside my charts tomorrow! That was a really good help for me!

Just for completeness, attached is a second example; this time, a recent downside break through a TD demand Line.

The calculations are exactly as for the previous TD supply line upside break example, albeit turned "upside down"

This breakout trade happened to get off to a bad start, and is still a long way off reaching any of its projected profit targets.

David

Will one of the mods please move this thread to the "Trading Systems" forum? I'd very much like to include it in the Mouteki/DeMark Index.

Thank you!

subs