Serj Panchuk
Many successful traders famous throughout the world are written about as gurus or medieval alchemists who were lucky enough to get enlightenment or find the 'the philosopher's stone '.
This holds especially true for the forex market. Warren Buffett, William Delbert Gann, George Soros, John Murphy - success of any of them looks like a mystical revelation even though their every step to achievement has been thoroughly described. They all left behind comprehensive instructions on trading methods they applied, techniques of technical and fundamental analysis and even laws of the Universe. But the truth is that if anyone does attain a level of, say, Mr. Soros - this will be exclusively because he or she did not follow their advice.
A good deal of books on forex are autobiographic and intended more to glorify their author's merits rather than set out theoretical knowledge or a set of practical tips for readers. This is mostly the case with description of different aspects of technical analysis, i.e. in a peculiar sphere where everyone is used to relying on their intuition and artistic talent rather than on strict scientific methods. Because even if you manage to classify and collect the fullest possible register of all existing patterns or models you still have to be able to recognize them in the chart.
One of the few attempts to describe more or less formalized tools that eliminate this 'creativity' factor was made comparatively recently, in 1994 by Thomas R. DeMark. It was then that he published his book, 'The New Science of Technical Analysis' which many traders believe has quite a few advantages over other similar literature, including its scientific approach to analyzing financial markets.
DeMark was not 'naturally gifted'. He studied in 1965-1972 at the University of Wisconsin to get his MBA and then took post-graduate studies in law. This not only determined his future as a professional analyst and respectable investment consultant but also enabled him to approach the research into stock market trading as a scientist. Having accumulated huge practical experience, first in the position of a fundamental analyst at National Investment Service, then in the position of Executive Vice-President at Paul Tudor Jones's company, he not only supplemented and improved many methods of technical analysis but also designed his own trading method and a whole set of indicators. His passion for formalization of all decision-making processes that bordered on a mania became handy during development of automated trading systems.
Interestingly, all his methods and indicators not only bear the name of their author but are also appropriately trademarked, for example, D-Wave Analysis™ (D - from DeMark's family name), DeMarker Indicator™, TD Lines™ (where TD, as you must have guessed, stands for Thomas DeMark) or TD Points™.
As mentioned above, a definitive feature of Demark's trading method is the possibility of a formalized definition of both the direction of the trend and the time for entry and exit. Based on the concept of an average duration of a tendency, the author of the method suggests determining when it begins having a series of data for at least nine trading days. In this series, the close price should be below than four days ago. The session close price that started the countdown of the nine-day period should be either above or equal to that of four days ago. Then you have to pinpoint the so-called crossing point which is established when the maximum price of any of the days exceeds the minimum price for a period of three days immediately before it. Finally, you have to wait for a signal to buy - there should be thirteen days in a row when the close price is below the minimum price of two days before. The procedure for finding a sell signal is similar.
DeMark himself said that even though all methods he described were developed in the best laboratory - on the trading floor of a stock exchange, they did not claim absolute perfection. Being a scientist aware of the essence of the financial market, he keeps on repeating both in his publications and during his numerous seminars and lectures that the main element of financial success is not selection of instruments, but a reasonable approach to money management.
The trader should be able to use the experience and knowledge of others to build his or her own trading rules - this is what Thomas DeMark is governed by in his own trading and what his educational effort is focused on.
Serj Panchuk
