New Market Timing Techniques: Innovative Studies in Market Rhythm and Price Exhaustion

By Thomas R. DeMark

Quick Summary

A detailed technical treatise on DeMark's proprietary market timing indicators, including TD Sequential, TD Combo, TD Lines, TD Retracements, and TD Channels. DeMark presents objective, rules-based methods for identifying trend exhaustion, drawing trendlines, and projecting price targets, all designed to remove the subjectivity that plagues most technical analysis. The foreword by Paul Tudor Jones attests to these tools' institutional credibility.

Executive Summary

Thomas DeMark's "New Market Timing Techniques" is a comprehensive presentation of his proprietary technical indicator suite, designed to provide objective, rules-based answers to the subjective questions that plague traditional technical analysis: Where do you draw the trendline? When is a trend exhausted? What is the price target? DeMark's approach begins with TD Points -- objectively defined pivot points based on specific price comparison criteria -- which serve as anchor points for TD Lines (trendlines), TD Retracements (Fibonacci-style projections), and TD Channels. The book's centerpiece is TD Sequential, a 13-count indicator that identifies potential trend exhaustion by tracking consecutive closes that meet specific comparison criteria. When a complete Sequential count occurs, the trend is likely exhausted and a reversal is anticipated. TD Combo provides an alternative count with different criteria. The foreword by Paul Tudor Jones, who has used DeMark's indicators at Tudor Investment Corporation, provides significant institutional credibility. The book is highly technical, presenting each indicator with precise rules and extensive chart examples.

Core Thesis

Traditional technical analysis is fundamentally flawed because it relies on subjective judgment -- where to draw trendlines, which patterns to recognize, when a trend is over. DeMark's indicators solve this problem by providing completely objective, rules-based criteria for every analytical decision. Markets exhibit measurable rhythms of exhaustion and renewal that can be captured through precise counting and comparison methods.

Key Concepts and Frameworks

1. TD Sequential -- A two-phase indicator consisting of a Setup phase (9 consecutive closes compared to the close 4 bars earlier) and a Countdown phase (13 closes compared to the close 2 bars earlier). A completed 13-count signals potential trend exhaustion and reversal.
2. TD Combo -- An alternative to TD Sequential with different counting rules that often provides earlier or confirming signals. The combination of Sequential and Combo signals at the same price zone increases confidence.
3. TD Lines -- Trendlines drawn between the most recent qualified TD Points (price pivots defined by specific criteria). Unlike traditional trendlines, TD Lines are objectively defined and automatically updated as new TD Points form.
4. TD Retracements -- Objective price projection methods similar to Fibonacci retracements but calculated using DeMark's specific formulas. Used for target setting and support/resistance identification.
5. TD Channels -- Price channels constructed using TD Lines methodology, providing objective overbought/oversold boundaries.
6. Market Rhythm Analysis -- DeMark's broader framework for understanding how markets move in measurable cycles of trend and counter-trend, with each cycle phase identifiable through his counting indicators.

Practical Applications for Traders

1. Use TD Sequential counts on daily and weekly charts to identify potential trend exhaustion zones for counter-trend entries.
2. Draw TD Lines using the objective pivot point criteria rather than subjective trendline placement.
3. Combine TD Sequential and TD Combo signals for higher-confidence exhaustion signals.
4. Use TD Retracements for objective profit target and support/resistance identification.
5. Apply across multiple timeframes -- weekly counts for the major trend, daily for intermediate swings, intraday for entry timing.

Critical Assessment

Strengths

• Provides genuinely objective, rules-based criteria that eliminate the subjectivity of traditional technical analysis
• Endorsed and used by major institutional investors including Paul Tudor Jones
• Comprehensive presentation with precise rules and extensive chart examples
• Applicable across all markets and timeframes
• The exhaustion-counting concept is a genuinely original contribution to technical analysis

Limitations

• The indicators are complex and require significant study to implement correctly
• Proprietary nature means they are less widely available than standard indicators (though Bloomberg and other platforms now include DeMark tools)
• The rules are numerous and specific, creating potential for implementation errors
• Limited independent academic validation of the indicators' predictive power
• Counter-trend trading (which DeMark signals often suggest) is inherently higher-risk than trend-following

Historical Significance

DeMark's indicators represent one of the most significant attempts to bring objectivity to technical analysis. Their adoption by major hedge funds (Tudor, SAC Capital, Soros Fund Management) and integration into Bloomberg terminals give them institutional credibility rare among technical tools. The TD Sequential indicator has become one of the most widely followed timing tools among institutional technical analysts.

Key Quotes

• "The purpose of my indicators is to create mechanical, objective methods for market timing that eliminate the subjectivity inherent in traditional chart analysis."

Conclusion

"New Market Timing Techniques" presents DeMark's ambitious attempt to transform technical analysis from a subjective art into an objective, rules-based science. The indicator suite -- particularly TD Sequential and TD Lines -- provides a structured, repeatable methodology for identifying trend exhaustion and drawing trendlines that eliminates much of the subjectivity plaguing traditional analysis. The institutional adoption of these tools by some of the world's most successful hedge fund managers provides meaningful validation. While the complexity of the rules and the counter-trend nature of many signals require careful implementation, DeMark's work represents one of the most important contributions to the methodology of technical analysis.