and to accurately interpret the signalsthey give off.

Trend lines delineate a succession ofsignificant daily or weekly prices in orderto help technicians spot trading opportu-nities. The lines can be drawn left to righteither from intraday highs to lower intra-day highs to form downtrend lines orfrom intraday lows to higher intradaylows to create uptrend lines. Closingprices can also be used as the points fromwhich to construct these lines.

While in theory this seems straight-forward, in practice it’s anything but.Not everyone chooses the same twopoints for trend line construction. Thischoice is subjective in terms of both theimportance of each point and the lengthof time over which to examine price action seeking relevant points.

Even if two trend lines are drawn thesame way, the meaning of subsequentprice action as it relates to the trend linesis subject to individual interpretation. For example, some technicians look for any price action thatbreaks the trend lineto validate a change ina trend or an end of a trend. Others require a single close beyondthe line or even twoconsecutive closes be-yond the trend line forvalidation. Some traders may even lookfor the entire daily price bar to be abovea downtrend line or below an uptrend linefor a trend change to be confirmed.

WITHOUT A CONSISTENT approach to thecreation of trend lines, research analysts,traders and portfolio managers can’t getthe most from these predictive tools. Tolessen subjectivity here, market technicianTom DeMark created a trend line indica-tor—TD Lines—which is mechanically reproducible and able to identify a poten-tial trend line breakout or failure.

On the Bloomberg Professional serv-ice, the TD Lines indicator can be easilycreated in the Graph Worksheet function:G. To see an example, type GEG <Go> 5<Go> for DeMark Indicators and then 3<Go> for TD Lines (figure 1).

A bar chart of either the most recentsecurity you requested or your default se-curity will appear, with the TD Lines studyoverlaying it. Type 99 <Go> as instructedat the top of the screen to save this studytemplate in your own Graph Worksheetmenu. From there it can be accessed andedited by typing G <Go>. To apply this

TD Lines take the guesswork out of drawing trend lines. They are also valuable in determiningthe validity of breaking TD Supply or Demand lines.

GETTING A BETTER TECHNICAL FIX ON MARKET TRENDS

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Type TDEF <Go>to change yourgraph and tech-nical analysisdefaults.

F I G U R E 1

1 Type GEG <Go> to list technical analysis studies that can be shown as graphwork sheet examples.

2 Type 5 <Go> from the list to see the DeMark Indicators, including TD Lines.

T R A D I N G T E C H N I Q U E S

‚ALL TREND LINES are not equal. Someare clearly better predictors of market di-rection than others. The challenge forchartists is to find these better predictors

labeling refers to the validity of any pricebreaks of these TD Lines.

A TD Supply Line (downtrend) is con-structed by drawing a line between themost recent TD Point high and the second-most-recent TD Point high—which is higher than the first TD Point

you chose. TD Supply lines that are qualified are shown as magenta lines.

Conversely, a TD Demand Line (up-trend) is constructed by joining the most

study to any underlying security or mar-ket—Intel Corp. for example—type INTCUS <Equity> G <Go> and then choose thenumber of your TD Lines template.

TD Lines are trend lines based on tworecent market points. Such points, knownas TD Points, are either flanked on bothsides by lower highs or surrounded byhigher lows on either side. A TD PointHigh is an intraday high with lower truehighs on either side of it. A TD Point Low isan intraday low with a higher true low pre-ceding it and succeeding it. The true low isthe lower of the bar’s low or the previousclose. Conversely, a true high is the bar’shigh or the previous bar’s close, whicheveris higher. Level one TD Points are usedthroughout this article, but higher levels of TD Points can also be used, thoughthis requires a greater number of lowertrue highs or higher true lows on eitherside of these points.

The TD Lines that link the TD Points canbe either TD Supply Lines (downtrendlines) or TD Demand Lines (uptrend lines).Figure 2 shows examples of TD Points, TDSupply Lines and TD Demand Lines. On thisfigure, key points of the indicator have beenlabeled. Points A and B are TD Point lowswith a TD Demand Line joining them. PointsC and D are TD Point highs with a TD Sup-ply Line linking them.

TRADITIONAL DOWNTREND LINES areusually constructed by arbitrarily pickingtwo significant high points and drawing a line sloping down. Most users identifythat first point by looking at the left sideof the chart and then moving toward theright-hand side of the chart to locate asignificant lower high. The points are thenjoined by a downtrend line.

Taking a somewhat different tack,DeMark suggests identifying TD Pointsby looking from right to left or frommost recent TD Point and then to TDPoints further back—or left on thechart. Once the two most recent TDPoints have been located, TD Lines aredrawn from left to right—just like con-ventional trend lines.

TD Lines can be either qualified or disqualified. Qualified and disqualified

recent TD Point low with the second-most-recent TD Point low—which islower than the first TD Point you identi-fied. Qualified TD Demand lines areshown as green lines on the charts.

All of the TD Lines shown are qualified.Point E is an example of Qualifier One (theprevious close is an up close), and the closeat point F is lower than the Demand Line.Point F also demonstrates Qualifier Two (anopen less than the Demand Line with pricefollow-through), and the close at point F isbelow the TD Demand Line. Point G showsQualifier Three (close less selling pressureis above the next day's Demand Line level),and point H confirms the qualifier by clos-ing below the Demand Line after it breaksbelow it.

Market prices that cross through qual-ified TD Lines are expected to continuetrading in the direction of the breakout.The term disqualified as applied to TDLines indicates any price breaks througha TD Line that will typically fail to closein the direction of the break during thatprice bar (figure 3). These two TD Linecharacteristics enable traders to capital-ize earlier with a trend when trading witha qualified TD Line as well as when trad- J

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F I G U R E 2

1 Type INTC US <Equity> GEG <Go> 5 <Go> 3 <Go>.

2 Type 99 <Go> to copy the graph to your Graph Worksheet Main Menu.

3 Type G <Go> to list your work sheets.

T R A D I N G T E C H N I Q U E S

a trend line to confirm a break and for-sake the earlier price movement that TDLines identify. If the previous day’s closewere an up close and Qualifiers Two andThree are not valid, then the TD SupplyLine is disqualified and gives you the op-portunity to fade—or trade against—thetrading above the line.

The same conditions apply to TD De-mand Lines. If there’s an up close the daybefore a rising TD Demand Line’s currentday, then the line is qualified and you canexecute at the break lower rather thanwaiting for a confirming close. Had therebeen a down close the day before the TDDemand Line’s current day, then the lineis disqualified and the break can be iden-tified as false and can be traded to takeadvantage of a move back across the TDLine. See figure 3, points A and C, for TD

ing against intraday price moves througha disqualified TD Line.

TD Lines should be checked to see if anyqualifiers exist before they’re labeled qual-ified or disqualified. Typically, you check tosee if each qualifier exists in succession. Ifany one qualifier exists, then the TD Line isqualified. Conversely, if none of the quali-fiers exist, then the TD Line is disqualified.The service automatically activates all qual-ifiers when this study is created within theG function. It also gives you the option toturn off any of the conditions.

Three conditions can be used in qual-ifying a TD Line. The first TD Line quali-fier keys off the close on the bar prior tothe current bar. If a TD Demand Line(uptrend) exists and the previous day’sclose is an up close, then the breakout isvalid and you can go with the price ac-tion intraday with the expectation thatprices will close below the TD Line. Seein figure 2 the price bar at point E, forthe qualifier; see the bar at point F forthe price action.

IF YOU USE conventional trend lines, younormally wait for a close above or below

Supply Line application examples of thistrading approach.

The second qualifier comes into playif there’s an opening above a Supply Lineor below a Demand Line. Assuming thatthe previous close hadn’t qualified theSupply Line, the current day’s open qual-ifies the line if , after the open jumps

above the Supply Line and the previousclose, the price then trades at least onetick higher. This price action indicatesvery strong buying demand and mightbe caused by news or events not alreadydiscounted in the price.

Alternatively, for a Demand Line to bequalified, it requires that the opening pricebe below both the rising Demand Line andthe previous day’s down close and that itthen trade at least one price tick lower.The requirement of an additional ticksometime after the open verifies that theopen hasn’t exhausted all buying or sellingpressure. Figure 2, point F, is an illustra-tion of this second qualifier and also of theclose below the Demand Line. Note thatthis Demand Line was qualified by bothTD Qualifier One (previous close was anup close) and TD Qualifier Two (open lessthan Demand Line and trades lower by atleast one tick).

The third and final qualifier measuresbuying and selling pressure and relatesthis to the close and the relevant TD Line.Buying pressure is the difference betweenthe bar’s close and its true low. Con-versely, selling pressure is the differencebetween the bar’s close and its true high.

In order to qualify a Supply Line, theprevious day’s buying pressure—whenadded to that same day’s close—must re-sult in a price level that’s below the cur-rent day’s Supply Line level. Should pricesthen exceed the Supply Line, the break-out is qualified and prices should contin-ue to trade above the line.

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F I G U R E 3

1 Type SP1 <Cmdty> GEG <Go> 5 <Go> 3 <Go>.

2 This bar chart demonstrates the application of disqualified TD Lines, which in this case are disqualified TD Supply Lines. In all cases—at allpoints A, B and C—none of the three qualifying conditions were met. This disqualified the breakout price action above the Supply Line and suggested a close back below the line, which occurred in all three cases.

WITHOUT A CONSISTENT APPROACH TO THECREATION OF TREND LINES, YOU CAN’T GETTHE MOST FROM THESE PREDICTIVE TOOLS.

Line’s value from that high. You then takethat value and project it downward fromthe current day’s Demand Line price breakto calculate a likely price target.

The chart of Kellogg Co.’s stock pricein figure 4 shows price targets for breaksof both Demand and Supply as red hori-zontal lines with their respective price

levels labeled. These price targets createdby market dynamics allow traders to es-timate the extent of future price action assoon as a qualified TD Line break occurs.

Once a qualified TD Line appears, can-cellation of this line and breakout can stilltake place. And like qualification, there arethree conditions that can cancel a TD Line:First, if on the day following a TD Linebreak the market opens back below aSupply Line break or above a DemandLine, the line is canceled. Second, if on the day following a TD Line break themarket opens in the opposite direction

Qualification of a rising Demand Lineoccurs when the previous day’s selling pres-sure—the difference between that day’strue high and the close—when subtractedfrom the same day’s close, indicates a levelthat’s above the current day’s Demand Linelevel. If prices break below the rising De-mand Line, the price action is qualified and

can be expected to continue. Point G in fig-ure 2 shows an instance of TD QualifierThree appearing, and point H shows the ex-pected price action.

Disqualified TD Lines occur when noneof the three qualifiers are found in theprice action; that is, if you don’t have anyqualifiers, what’s left are disqualifiedlines. These disqualified TD Lines areshown as dotted blue lines in the G func-tion on the system. Any price movementbreaking these lines can be expected toturn back through these lines during thesame day or by the next day as shown infigure 3 at points A and C.

TD Lines have another use besidestaking the guesswork out of drawingtrend lines. In addition to qualifying TDLine breakouts early, the TD Lines indi-cator also provides breakout price tar-gets for later price movement. Appliedonly to qualified TD Lines, these targetsare derived from the price bars preced-ing a line break.

In order to determine the price targetfor the break above a Supply Line, for ex-ample, you determine the vertical distancefrom the lowest low below the Supply Lineup to the Supply Line level on that sameday. You then add that distance to the cur-rent day’s breakout level to gauge a pricetarget level for future price movement.

THE PRICE TARGET for a break of a De-mand Line is calculated in the same way. You identify the highest high above a Demand Line and subtract the Demand

of the breakout bar’s close and then continues to close opposite the direc-tion of the TD Line price break, the line is canceled. And third, if on the day following a TD Line break the market fails to trade above the Supply Line break bar’s high or below the DemandLine break bar’s low, then the line is can-celed. The TD Lines indicator in the Gfunction automatically considers thesethree cancellation conditions and displaysthem as red Supply or Demand lines.

The TD Lines indicator is able to me-chanically reproduce objective trend linesfor all markets and time frames by con-necting the two most current TD Points.These lines can then be qualified or disqualified and can warn traders of thelikelihood of any price breakout’s continu-ing. Once a qualified TD Line has been broken, the indicator highlights a market-derived price target.

Conventional trend lines have theiruses, but because of their unique quali-ties, TD Lines often provide distinct ad-vantages over the conventional variety.„

LINDSAY GLASS is business analyst for technical

analysis and DeMark Indicators specialist at

Bloomberg in New York.

lglass@bloomberg.net

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F I G U R E 4

1 Type K US <Equity> GEG <Go> 5 <Go> 3 <Go>. This chart shows a SupplyLine—the magenta line—ending on June 5, 2001, and its price target of28.78, which was reached on June 21, 2001. The Demand Line—the greenline—ending on June 6, 2001, projects a 26.23 target that was attained onJune 8, 2001. The market subsequently rallied.

TD LINES OFTEN PROVIDE DISTINCT ADVANTAGES OVER CONVENTIONALTREND LINES.