I continue describing Thomas DeMark’s technical tools. I have already explained such tools as:
1. TD Retracements
2. TD Lines of demand and supply
3. TD D-Wave
4. TD Sequential and TD Combo
Today, I am going to deal with TD Trend Factor and TD Propulsion. These are two independent technical tools that in combination help you quite accurately identify the trend reversal moment and potential targets. But first, I’d like to unveil a small secret of . Following long experiments with Fibonacci numbers, found out the two most important of them. These are 0.382 and 0.618. By subtracting one from the other and dividing the result by 4, he found the value of 0.059.
Later, for many years using this number in practice to calculate levels of , he came to the conclusion that the most frequent ratio that occurs in trading is 0.0556. Therefore, when calculating the resistance levels, an upward percentage of 0.0556 * 100% = 5.56% is used. When calculating the support levels, a downward percentage of 100% - 5.56% = 94.44% is used to analyze micro-movements or prices whose count goes more than two digits after the decimal point, suggests using a coefficient with a shifted decimal point, i.e. 0.556% and 99.444%, respectively.
TD Trend Factor basically aims at identifying the trend reversal level and confirming its relevance. To do this, we first need to find out the reference point.
For a , it is determined by the following conditions:
1. Identify the bar that marks the peak of the
2. If the high bar above the previous bar, the starting point is at this bar’s high
3. If the high bar closes below the previous bar, the reference level is the closing price of the bar with the peak.
To explain it better, I’ll give an example:
The above chart presents Bitcoin all-time high. Its peak is at 19891 USD. You see that this bar’s close is lower than the previous bar’s close, so, the reference level is the high bar’s close.
This level is at 18960 USD. So, based on this level, we shall build the levels of TD Trend Factor for a . The simplest way is to calculate them in Excel.
Therefore, I’ve got the following calculations:
18960*94.44% = 17905
17905*94.44% = 16910
16910*94.44% = 15970
You can be calculating in this way until the result is close to 0. With rounding to integers, there are the following levels
Eventually, as the history has proven, the low of the came at 3215.2 USD, that is just a few dollars below one of the levels indicated above.
You might say that this is a coincidence but try to carry out this experiment on other trends and you will see that it works.
If we analyze the earlier history BTCUSD price chart, we’ll see that the TD Trend Factor levels of the downtrend had excellently worked out before that (see the chart above). In addition, it is clear that the lower the price is moving, the thicker becomes the grid. This construction fully matches to the market behavior; in a correction, the deeper the price falls, the stronger the resistance becomes and the shorter is the range of price swings.
For a , the same rules are applied, only in vice versa. .
To find a reference levels, we need identify the bar that marks the low of the and:
1. If the low bar closes below the previous close, the reference level is at the low.
2. If the low bar closes higher than the previous close, the reference level is the low bar’s close.
I’ll explain on the example.
The above chart represents the low at 3215.2 USD that we have already marked before.
If we zoom it in, we’ll see that the close is a little higher than the previous bar’s close, so the reference level will be set based on condition 2, at 3283.4 USD.
The levels will be calculated in the same way, only the coefficient will be 105.56% instead of 94.44%.
Finally, there are following levels:
It makes no sense to mark all the levels in the chart, but to estimate the relevance of the calculated levels, I’ll mark the closest ones to the recent price movements.
As you see from the above chart, the calculated zones serve not only as strong resistance levels, but as a support as well.
How to use TD Trend Factor
TD Trend Factor is a supplementary tool, used to confirm signals, it doesn’t provide any buy or sell signals by itself. So, you need to use it together with other DeMark's tools:
TD Lines of demand and supply
TD Sequential and TD Combo
And other DeMark's indicators that I haven’t yet described.
One of these tools is TD Propulsion.
The indicator is designed to send signals of the trend extension or exhaustion. This tool consists of two parts. The first element is TD Propulsion Up and TD Propulsion Down,these indicate entry points. The second part is TD Propulsion Up Target and TD Propulsion. As you can guess by the name, these are trend targets. So, let us see how this indicator is built and how it can be employed in practice.
Thomas says that to confirm a , we need to do the following:
1. Identify the points of X and Y – the low and the high of last growth wave in they .
2. Identify the Z point – the lowest level of the correction, following the growth wave XY.
If this level is lower than 23.2% of the correction size, than the points of X and Y are correct; if this is not so, one needs to rearrange the borders of the wave.
Next, we shall identify the TD Propulsion Up level
To do it, we use a simple formula:
A = Z+(Y-X)*0.236, , so, in the given example, this is:
A = 12730.6 + (17171 - 5400.2)* 0.236 = 15508.5 USD.
This level marks the first in the trend continuation. As a rule, this level is not broken out when the trend reverses. Next, we shall find out the level of TD Propulsion Up Target.
To do it, we use a simple formula:
A = Z+(Y-X)*0.472, so, in the given example, this is:
A = 12730.6 + (17171 - 5400.2)* 0.472 = 18286.4 USD.
This level is potential buy zone. As you see from the chart above, this level is very close to the real one and the trend reversed only after just a little more than a thousand of dollars,
I will describe this situation in more detail a little later. Now, I’d like to explain how to analyze a with TD Propulsion.
Here, you build everything in a similar way, just like when using other DeMark's tools. For the further analysis, I found out clear borders of the downward wave. They are marked with the points of X and Y in the above figure.
Now, let us look at the start of the correction and the level where it finishes. This is point Z in the chart. You see that this level exceeds the level of 23.2% of the correction, and so, the wave itself and point Z are suitable to calculate the TD Propulsion Down.
To do this, I use the following formula:
A = Z-(X-Y)*0.236, so, in the given example, this is:
A = 4384- (6485.8-3215.2)* 0.236 = 3612.14 USD. This level is TD Propulsion Down.
Next, I identify D Propulsion Down Target.
The formula is:
A = Z-(X-Y)*0.472, so, the there is the following result:
A = 4384- (6485.8-3215.2)*0.472 = 2840.27 USD.
As you see from the above chart, the A level has worked out. As I’ve already written above, this level may signal either the trend continuation or its reversal. And the way how the price goes through this level, very difficult and slowly, is the trend reversal sign. In addition, I should note that both in the first case, when we identified the reversal, and in this situation, level A works out. Therefore, it can be applied as a low-risk trading strategy to set the intermediate targets when analyzing the Bitcoin future price movements. To see the full capacity of these tools, we need to study their application together with other DeMark's tools on a real example.
As an example, I will analyze the moment when the trend was reversing at 3215.2 USD. It is clear from the above chart that TD Propulsion Down A level exactly matches to the TD Trend Factor level at 3612.1 USD. When, following the Z point, the BTC price was moving down, it is clear that this level provides a strong support. In addition, the TD Trend Factor level at 3466 USD is not broken out. The price rebounds from it like a rubber ball.
A buy signal here is the Setup (remember TD Sequential and TD Combo). This signal is marked with a red arrow in the above chart. It is confirmed by a typical rebound from the TD Trend Factor level at 3466 USD and the bar closing above level A. After this combination, one could have already entered a long with a short stop beyond level 3466 USD.
You already know what happened next. The risk/profit ratio for such a trade is perfect. Now, for a fair experiment, let us try to find out an entry point in the current market. First, let us build the TD Trend Factor levels.
There is already a clear high with the peak at 13764 USD. We see that this high bar closes above the previous bar’s close. So, the reference level will be at the highest high of 13764 USD. Next, we multiply each level and the product of each multiplication by *94.44%.
There are the following values:
In the above chart, I marked these levels and I have noted that the last bar closes above the previous bar’s close; and its low at 9728.2 is close to the TD Trend Factor level at 9765, which itself is a signal. For the Bitcoin price prediction, based on this signal, I may already assume a reversal and point Z to calculate the levels of TD Propulsion.
It is clear from the above chart that the Z point is a little lower than the level of 23.2% of the correction from the wave XY with the coordinates on the price scale of 3405.3 and 13764. Therefore, the Z point is relevant for this wave. So, we can calculate TD Propulsion Up (A) and TD Propulsion Up Target (B), according to the coordinates and the formula studied above:
A = 9728.2 + (13764 – 3405.3) * 0.236 = 12172.85 USD.
A = 9728.2 + (13764 – 3405.3) * 0.472 = 14617.51 USD.
Next, I attach the TD Sequential indicator and select the timeframe where setups are worked out most accurately on the historical data. For the BTCUSD pair, the indicator performs the best in the five-day timeframe.
As a result, you see that the BTCUSD is now in a setup, where the fifth bar is formingg, out of nine in total. It means that before a the bitcoin trend could reverse and a should starts, there at least four bar more to be formed in the , not counting the currently forming bar, that is, there are more then four weeks ahead. In addition, there is a strong at the Z level at 9728 USD, below which, one might set stop losses, and the first target for ta take profit is at 12172.85 USD, the second target profit is at about 14617 USD.
Besides, I can define the possible BTCUSD scenarios and suggest an adequate response to a particular market situation.
The chart above outlines three possible scenarios for the BTC future trend.
1. The first scenario, a pessimistic one suggests that the BTC ticker shouldn’t break through the A level and rebounds downside. This is a clear trend reversal sign. We should take the profits and enter short trades with a stop above the A level.
2. The second scenario is neutral. According to it, the ticker should break through the A level and stop close to the B level. In this case, we will take the profit at the B level and expect either the reversal below the A level to enter shorts, or reaching the B level to enter new longs.
3. The third scenario is the most optimistic and the least possible, in my opinion. The ticker breaks through the levels of A and B with large volumes and without strong delays. In this case, we should just follow the trend, moving the stops, covering the TD Trend Factor levels, calculated before, based in the low of the .
Here, I am about to finish describing Thomas DeMark's tools, TD Trend Factor and TD Propulsion, but I am not finishing writing about his studies. In my next training article, I will deal with more unique tools by the famous trader and explain how to apply DeMark's indicators to cryptocurrency trading.
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I wish you good luck and good profits!