The New Science of Technical Analysis (Thomas DeMark)

The New Science of Technical Analysis (Thomas DeMark)

Today I’ve finally finished reading Tom DeMark‘s The New Science of Technical Analysis. I’d say that it’s difficult to judge a book written by a living person with an almost legendary status in the world of financial trading. Despite the fact that the book was written more than 16 years ago, it’s still a generous source of the extremely useful insights on technical analysis. Tom tries to use a scientific approach in one of the most unscientific fields — financial trading, and does so rather successfully.
The book is quite long and it isn’t very easy to read. It includes many chart examples from all sorts of markets. I’ll try to list the theses voiced by DeMark in his work here:

• Conventional market analysis methods are inaccurate and fail to show consistent returns.
• Strictly mathematical and emotionless approach is the cornerstone of the successful technical analysis.
• The uptrend is over “when the last buyer has bought” and the downtrend is over “when the last seller has sold”.
• There are many ways to analyze the charts — trendlines, patterns, indicators, etc. — they all work if used properly.
• Developing and testing your own analytical and trading tools is an important part of learning.

The New Science of Technical Analysis is a great book. It’s an ultimate source of trading ideas and inspirational material. I recommend reading it because of the following advantages:

• Strict mathematical approach to determining the chart points and signals.
• All areas of the technical analysis are covered.
• The book presents a lot of ideas for indicators, expert advisors and fully developed trading strategies.
• It will inspire you to develop your own analytical rules and tools.

With all the pros, unfortunately, this book has its own cons too. Here’s a subjective list of disadvantages that prevented me from getting the usual pleasure of book reading:

• It’s written in a very difficult language. It’s almost impossible to read it without stops and returns.
• A lot of complex things are described poorly. For example, if not for the sample code provided in the book, I wouldn’t be able to build a Range Expansion Index for MetaTrader using only DeMark’s textual description.
• ™ symbols everywhere in the text — I hate them :-).
• DeMark talks a lot about his research of the presented methods but he doesn’t provide any statistical data to prove his research. That’s a huge disadvantage for a book that talks about relying on scientific approach to trading.

Overall, it’s still an awesome book to read, even if difficult at times. It will help you sticking to the accurate analytical methods and will give you enough of the basic information to create your own methods of technical analysis. And once you get used to them, you’ll be able to trade successfully. If you plan to trade only Forex, you can skip some chapters to save yourself from Tom’s writing style.

If you have any questions, comments or opinions regarding The New Science of Technical Analysis by Thomas R. DeMark, please, feel free to reply in the comments below.