New Market Timing Techniques Innovative Studies in Market Rhythm & Price Exhaustion Thomas R. DeMark John Wiley & Sons, Inc. New York • Chichester • Weinheim • Brisbane • Singapore • Toronto This text is printed on acid-free paper. Copyright © 1997 by Thomas R. DeMark Published byJ ohn Wuey & Sons, Inc. All rights reserved. Published simultaneously in Canada. Reproduction or translation of any part of this work beyond that permitted by Section 107 or 108 of the 1976 United States Copyright Act without the permission of the copyright owner is unlawful. Requests for permission or further information should be addressed to the Permissions Department, John Wtley & Sons, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher and author are not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. DISCLAIMER Although both the author and the publisher believe the infortUation, data, and contents presented are accurate, they neither guarantee their accuracy and completeness nor assnme any liability. It should not be assnmed that the methods, techniques, or indicators presented in this book will be prof itable or that they will not result in losses. Trading involves the risk of loss, as well as the potential for profit. Past perfortUance is not a guarantee of future results. Library ofC ongress Cataloging-in-Publication Data: DeMark, Thomas R., 1947- New market timing techniques: innovative studies in market rhythm & price exhaustion / Thomas R. DeMark. p. cm.-(Wiley trading advantage) Includes index. ISBN 0-471-14978-0 (cloth: aIk. paper) 1. Investment analysis. 2. Stock price forecasting. 3. Financial instruments-Prices-Forecasting. I. Title. ll. Series. HG4529.D458 1997 332.63'222---dc21 97-19962 Printed in the United States of America 109876543 To my wife Nancy, who for many years has lived the life of a trader's widow, for her tolerance, insight, common sense, and encouragement To my children, TJ., Carrie, Meghan, Rocke, Evan, and Dominic, of whom I am deeply proud, for their love and respect To my parents, for their direction, support, and values To Frank Mersch and Tony Popowich, for their interest in new ideas and market applications To Tim Mather, Rick Knox, Ernie Popke, and Matr Storz, for their help, time, and most of all for their friendship To Leon Cooperman, for his support of me and my work, as welI as his enduring friendship throughout the years To Duane Davis, for his unselfish willingness to contribute his programming and technical expertise and time To the management and software pioneers at ADP, Aspen Graphics, Bloomberg, Bridge, CQG, Dow Jones Markets, GFIC (formerly Knight Ridder), Future Source, Omega Research, Telerate, and TeleTrac, for their confidence in and commitment to my indicators and for the recognition of their value and contri bution to the investment community To J ason Perl, Anthony Orphanos, BilI Meltzer, J oe Bemardo, Ginger Szala, Ron Michaelsen, Mark Etzkom, BilI Abrams, J eff Henderson, Dick Pfister, Rex Wilmore, Chris Evans,John Praetorius, Gibbons Burke, Rick Redmont,John . May, Stuart Okorofsky, Sam Tennis, Pat Raffalovich, AI Kingon, Courtney Smith, Mark ElIington, Peter FiedeIholtz, Karen Thomas, George Farley, Milton Bames, Rob and Scott Madden, Ron WilIiams, Pat Kowalski, Rick Bensignor, Wayne Babler, Cheryl Polan, Robert Stehlik, LucilIe Kirkpatrick, Bill Griffith, Ron Insana, Sue Herrera, Richard Saxton, and John Murphy, as welI as many others, for their interest in my work throughout my career. Contents Trademarks xi Foreword xiii Acknowledgments xvii Introduction xix Chapter 1 Oscillators 1 TO ROC ITM and TO ROC ((TM 8 TO REITM-Standard and Alternate 23 TO OeMarker™ I and" 29 TO PluralityTM 34 Chapter 2 TD Sequential™ 40 Setup 43 Setup Cancellations 48 Setup Qualifiers 54 Recycling 67 Intersection 78 viii Contents Countdown 79 Execution Settings 92 Implementation 98 Chapter 3 TO Combo™ 118 Execution Settings 123 Implementation 129 Chapter 4 TO lines™ 160 TD Breakout Quafifiers™ 167 Execution Settings 1 72 Chapter 5 TO Retracements 180 TD Relative Retracement™ 180 TD Absolute RetracementTM 200 TD Arc™ 208 Chapter 6 Price Breakouts 213 TD REBOTM 213 TD SpringTM 219 TD LVTM 222 TD Point Reversal™ 225 TD Double TD PointTM 230 TD TrapTM 231 TD Open ™ 238 TD CLOPTM and TD CLOPWINTM 240 Chapter 7 TO Moving Averages 244 TD Moving Average JTM 244 TD Moving Average JlTM 246 Contents ix Chapter 8 Market Timing and Market Systems Development 250 TDT] 252 TD Carrie 253 TD Meghan 254 TD Rocke 255 Chapter 9 TD Triangulation ™ and TD Propulsion ™ 257 TD Triangulation 258 TD Propulsion 265 Chapter 10 Additional Indicators and Ideas for System Development 269 TD Trend (TDT)TM 269 TD Pivot™ 271 TD DiffTM 275 TD Pressure™ 279 Chapter 11 Methods to Calculate Price Objectives 284 TD Trend Factors ™ 284 TD Channel ITM 292 TD Channel JlTM 292 TD Channel IIJTM 293 Chapter 12 Market Myths and Misconceptions 297 Point and Figure 297 Confusion Regarding Graphic Presentation of Overbought and Oversold Oscillators 298 Short-, Intermediate-, and Long-Term Definitions 299 x Contents New Highs, New Lows 299 Price Reversals 300 Price Gaps and Price Laps 301 TD One Tick One Time Rule™ 301 Strong versus Weak Markets 303 A Broker or a Market Commentator Predicts a Buyout 303 Elliott Wave Analysis Is Definitive When Identifying Market Tops and Bottoms 304 It Is Impossible to Make Daily Price Projections for Markets 304 Price Patterns Do Not Repeat Themselves 307 Only the Option Writers Make Money Trading Options 308 Wait for the Closing Price to Enter a Suspected Price Breakout 309 It's Impossible to Anticipate Trend Changes 309 Trading Price Breakouts Is a Simple Way to Participate in Market Trends 310 Once an Entry Technique Is Tested and Perfected, Trading Success Will Follow 311 Chapter 13 Money Management 312 Chapter 14 Conclusion 316 Appendix TO Indicator™ Settings 321 Index 333 Trademarks All of the following indicators are registered trademarks and protected by U.S. Trademark Law. Any unauthorized use without the express written per mission of Market Studies Inc. or Tom DeMark is a violation of the law. TD Absolute Retracement TD Duration Analysis TD Propulsion TD Alternative Oscillator TDD-Wave TD Range Expansion TDArc TDExit 1 Index (I'D REI) TD Breakout Qualifiers TD Fibonacci Intraday TD Range Expansion TD Came (I'DC) Indicator BreakOut (I'D REBO) TD Channel I, IT, ill TD Final Filter TD Range Projection TDCLOP TDGap TD Relative Retracement TDCLOPWIN TDLV TD Rocke (I'DR) TDCombo TDLines TD ROC I, IT (I'D Rate TD Combo Reinforce- TDLineGap of Change) ment TD Magnet Price TD Sequential TD Countdown TD Meghan (I'DM) TD Sequential Reinforce- TD Critical Price TD Moving Average I, IT ment TD Critical Qualifier TD One Tick One Time TD Setup Trend (I'DST) TD Daily Range Projec- Rule TD Spring tion TDOpen TD Stop Reverse TDDeadZone TD Pivot TD Supply Line TD Demand Line TD Plurality TD Termination Count TD DeMarker I, IT TDPoint TDTJ(I'DTJ) TD Diff TD Point Reversal TDTrap TD Dollar-Weighted TD "Power of Nine" TD Trend (I'DT) Put/Call Ratio TD Pressure TD Trend Factor TD Double Price Range TD Price Flip Trend TD Triangulation TD Double Retracement TD Price Oscillator Qual TD Two Day Stop TD Double TD Point ifier (I'DPOQ)