Tutorial

1. TUTORIAL DEMARK(C) INDICATORS

The foundation and most famous of the DeMark (c) indicators are the setups and countdowns, the ?9s? and the ?13s? you see discussed on tv.

The ?13s?, Sequential and Combo, tries to identify points of exhaustion in the market. This occurs when everybody has bought or sold and the market then should reverse from a lack of buyers or sellers. We always say ?Markets top on good news and bottoms on bad? and not the other way around. When sentiment is bearish, markets reverse higher and vice versa.

When looking at a market from a DeMark perspective, we try to conclude if the market is trending or not. This is done by identifying a ?price flip? which is a close or sell that is below or above the close 4 bars ago.

The price flip is the first part of a Buy- or Sellsetup. A buysetup is a move lower that leads to a buy and vice versa. There is difference in how they work but they both apply the same rules.

In order to record a Buysetup (here we use a Buysetup as example) the first step is a Bearish price flip.

The Bearish price flip is a close below the close 4 bars ago and an 1 appears below the pricebar. When this occurs the market might be starting to trend. However, in order to get to a Buysetup, this has to occur for 9 consecutive days, else it is cancelled and a Setupcount starts the other way, into a Sellsetup.

A sequence of 9 lower closes than the bar 4 ago must then be seen and the buysetup is recorded. At any point it closes above the close 4 bars ago the count is cancelled and Bullish price flip is seen and a 1 appears above the price bar for the Sellsetup.

When the count goes to 9, it is finished and the Buysetup has recorded. This is crucial to our work.

The recording of the Buysetup leads to one of the more important indicators, it creates the TDST. TDST is crucial resistance for a buysetup (support for a Sellsetup) and considered inflection point for a momentum break. As long as the market is contained within TDST, the market is rangebound whereas a break of TDST is the momemtum trigger.

At the bar 1 high (second chart) the TDST is created and from now represents TDST resistance, blue line.This and the local high in the Setup, in this case the bar prior to 1.

On this chart TDST and TD Sequential only. Sequential is the most known indicator the 13 (with Combo the second and the less know aggressive settings)

Daily TDST created at high (also in this chart the marked bottomed at TDST support, red line created from the previous Sell setup)

Daily TDST created at high (also in this chart the marked bottomed at TDST support, red line created from the previous Sell setup)

The setup is the trend and the count, although no more numbers are showed after the 9, can go on forever.

When a setup is recorded one should look for 1-4 bars reaction but inside a range, the expectation is to move into another setup towards the newly created TDST.

This is clear in the chart below showing the days leading up to the price flip and buysetyp .

A Sell setup had created Daily TDST support at the Low of bar 1.The went on to record the buysetup showed in charts above and then tested the TDST took off higher.

The move prior to price flip and buysetup had created TDST support that was tested and held.Expectations are then for the move to reverse inside a range.

Note also that TDST is the level to watch and the ones waiting for the previous lows prior to the sellsetup waited for a long time.

This test of TDST shows one important ?rule? that is not but good to keep in mind.

A buysetup recorded well above TDST support is riskier as the TDST often is tested and the buysetup entry is too wide.

In short this means that a setup close to TDST that closes within the level is good to act on.

Following the buysetup and the test of TDST the market then went up to test the TDST resistance.

A new sell setup recorded right at TDST resistance and such creating a new TDST support (1105 here).

When this new Sellsetup is recorded the old and tested TDST is cancelled.

Note that the dots stop, that is because as long as active a new dot for each day is added.

This is always the most recent active indicator no matter what.

From now on the Daily TDST support is derived from the recent sellsetup.

This is crucial as the previous has lost any significance and meaning.

Following the recording of a Setup the exhaustion count begins. This is always the case on any setup recording.

There are two basic exhaustion signals, Sequential and Combo.

Both exhaustion signals runs to 13 and unlike the Setup the bars don?t have to be en consequitive order.

The only rules we use are (they are optional but for bigger moves we believe they are best)

The bar 8 Close has to be above the Bar 5 close And

Bar 13 High has to be above the Bar 8 Close.

There are a big different between the two but we begin with Sequential.

An exhaustion bar of a sell signal is a close above the high 2 bars ago and if so a 1 appears above the bar 9.

If bar 9 is not above the bar 2 days prior (bar 7) nothing shows and the count continues until the condition is filled.

This is the only condition for a Sequential, a Close above the High 2 bars ago.

Sequential Bar 1 records as Close > 2 bars ago records 1. 6 Close > 2 days (that is also bar 4 of Sequetial).

After bar 7 the count pauses as sideways and no close above the high 2 bars earlier.

Green circles do Not record even though good upside.

Bar 8 records 7 trading days after bar 7 and could in theory record a year later if the market starts going sideways.

Following the TDST test and the new Sell setup record the market then broke the TDST resistance and started the Sequential countdown.

It started trending higher although not a very sharp move and went on to record the 13 Sequential sell setup.

The 13th and final bar created Risk Level (that is the highest bar added to bar 13) and is considered more or less a stop loss.

If this level is taken out the Sequential is no longer valid.

The Risk Level is often a very good level to act against given certain conditions.

The bar 13 is recorded At Close although one can use Open restriction for more aggressive and minimize to risk to miss a countdown.

Both the Close and Open condition requires that they are above the high 2 bars ago.

Sequential 13 recorded and Risk level is then tested already the next day. See the 13 is at 1195 (entry) but it traded at 1215 two days after.