Hi Aditya,
These are Demark's Trendline breakout qualifiers as described in his book "The New Science of Technical Analysis" as well as "Day Trading Options". He calls them Supply & Demand lines & the way to draw this is different than normal trendlines. First of all these have to be drawn from right to left as opposed to traditional trendlines which are drawn left to right.
In a downtrend we have to select a bar which has .higher close than the preceding & succeeding bar. This is the first TD Point. Next we keep on going to the left of the screen & find a similar point to the first one but has to be higher then it. This is second TD point. The trendline is drawn connecting these two lines & is called Supply Line.
Just replace high with low in the above para to draw demand line.
Now when the trendline breaks to determine whether it is a genuine or fakeout, TD Mark has provided with breakout qualifiers. The above chart describes the same. I'll just explain the Upside Breakout, just apply the opposite the downside breakout.
Q1. The bar prior to the upside breakout should have a close lower than the preceding bar close.
Q2: If there is a gap up opening with the open with the open greater than the supply line & also it goes on to create a high which is greater than the open, then the breakout is genuine.
Q3: If neither of the above two is applicable then we go to third one. If the supply line is greater than close + (same bar low or the previous close, whichever is lower) - & the current bar goes on to break the SL, then breakout is genuine.
Q4: This is an optional qualifier: The current bar open should be greater than previous two closes & the SL must be greater than the previous bars high.
Just replace high with low for downside breakout.
Thx
