ill be the PLdot； and if that breaks。and the market continues。to the upside； then the secondary target would be the opposite side of the envelope system。 Note that these targets。are determined far in advance； at the close of December 2001； and projected out for 2005。
If we can say that it's likely that price； once it goes inside a channel； will go to the PLdot line or the opposite side of the channel； then we have a target for the year。 And when the market gets。to that target； then we reassess。and make a judgment about the market's。next goal。
Suppose that at the end of 2004； we were watching the U。S。dollar/Japanese yen exchange rate and were applying Drummond Geometry analysis。to the market。 What would we have been seeing？ Figure 1。8 （two…year； yearly； and quarterly。charts） and Figure 1。9 （monthly and weekly charts） lay out the basic。dynamics； and Figure 1。10 shows。the exact entry points。on a daily chart。 From two…year bar charts。all the way to daily charts—that's quite a span。 But each contributes。to the total picture and sets。up a pelling case for a major market turn to the upside starting in December 2004 and January 2005。
（These last chartsntain a lot of information and are a bit difficult to render in the black…and…white formal necessary for print reproduction； on the puter screen； however； the use of color makes them easy and quick。to read。）
Here is。a breakdown of what we would have seen by applying this。analysis：
On。the two…year chart。 The market was。in congestion （successive price bars were dosing on opposite sides。of the PLdot）； and the PLdot was。moving sideways。across。the page。 We were in the middle of two…year nearby support。
On。the one…year chart。 The market was。in a trend rundown； with the next anticipated type of trading being congestion entrance to the upside。 We were a long way。below the yearly envelope bottom； and so we were looking for a move back。up at least to the envelope bottom； and probably to the yearly PLdot； and possibly to the yearly envelope top。 We were in yearly support and in two…year support； with a significant bias。for a move to the upside。 In January 2005； we would be watching to see if nearby yearly。support would hold and bee strong； and thus。flag a yearly exhaust entry。
On。the quarterly chart。 We were in yearly support； and in quarterly further…out support； and a potential exhaust pattern was。setting up for a strong return to the quarterly。PLdot。 In the first quarter of 2005； we would have been monitoring the move away from quarterly nearby support to validate the exhaust buy signal。
On。the monthly chart。 On the left…hand side of Figure 1。9； we see exhaust entry。signals。as。the market's。downtrend stalls。in monthly； quarterly； yearly； and two…year support。 Monthly nearby support is。holding and is。showing to be strong。
On。the weekly chart。 On the right…hand side of Figure 1。9； we are again seeing multiple exhaust buy signals。as。the market tests support； bounces。off； es。back。for a retest； and then starts off to the upside with more conviction。 The Drummond Geometry。trader can take action on these exhaust buy signals with some confidence because he can see that we are in two…year； yearly； quarterly； monthly； and now weekly。support； and all with definite upside targets。
On。the daily chart。 Taking all of this。information into consideration； we e in the daily chart （Figure 1。10） and again see multiple exhaust buy signals。as。the dollar/yen exchange rate tests。the major bottom that's。being put in。 If the trader has。a long…term perspective； he could build a large position； buying on the dips。 The multiple daily exhausts。into multiple longer lime period support during December 2004 and January 2005 provide the opportunity。
Of what value is。the long…term chart analysis？ In 2003； the dollar/yen exchange rate ran from approximately 101。67 to 121。39。 That's。a huge move in these markets； and Drummond Geometry had a set of indicators that helped the trader get in near the very start of this。move。 What's。more； the methodology provides tools。that help establish reasonable targets。and monitor the position。 The trader knows。at all times。what the market has。to do if this。trade is。going to work。out。
Monitoring
How do we know if our predictions。and analysis are correct： The possibility of being wrong is。always。present because we're human； and so we need to have some means。of monitoring the market activity to tell us。if our predictions are on target and accurate or not。
The element of monitoring is。essential to Drummond Geometry trading。 To monitor effectively； we need to recognize the quality of market flow and to understand what the market looks like when it's。moving successfully toward a goal； and what it looks。like when that progress。has。slowed or changed。 Flow can be defined in a number of ways。 The simplest way is。to note how the market is dealing with resistance and support on a shorter time frame。 If resistance is。holding and support giving way on the shorter time period； then the flow is。down。 If the reverse is。true； the market is。headed up。 The methodology also includes。more sophisticated definitions of flow using range； position of close relative to the high and low； progress。through the envelope system； and advance/decline measures。 But the bottom line is。how the shorter time period handles。resistance and support； if the weekly。and monthly consistently break。resistance and hold nearby support； then the quarterly and yearly bars。are headed up； and the quarterly and yearly upside targets。should be kept in sight。
The world is。a plicated place。 Huge geopolitical forces。shape the global currency markets。 Exchange…rate charts。are the graphic。reflection of massive changes。as。the fortunes。of countries。and peoples。rise and fall。 When major shifts。occur—changes。in interest rate policies； wars； shifts。in national priorities； or changes in regimes—the relative values。of the currencies。of different countries。can be on the move in a major trend for a significant period of time。 Although it's。not possible for the individual trader to know or understand all possible fundamental information； it is。possible to make reasonable predictions。about the extremes。of yearly。price action； to monitor those assumptions； and to trade them successfully； picking off the yearly highs。and lows。and thus。preserving capital or building wealth； depending on your goals。
Trading is。a difficult business。 It requires。both on…target perceptions。and mental strength。 First you have to see the opportunity。 Then you have to take the opportunity。 You have to stick。with your decisions。through thick。and thin as。you monitor the trade； knowing exactly what has。to happen if you are wrong and what has。to happen if you are right。
Trading the Forex with an eye on long…term Drummond Geometry charts。can help the trader keep the market in context and withstand the many wide countertrend oscillations。that will shake out the trader who is。not equipped with the long…term perspective that yearly and quarterly charts。provide。 Seeing the yearly bar develop lets the trader watch the background； not just focus。on the foreground。 To be better than the rest in trading； as。in so many fields； we have to do something different from the rest。 In trading the global currency。markets； one tool that can make a real difference is。a careful analysis of the big picture； using the multiple time period analysis。of Drummond Geometry。
CHAPTER 2
Trend Spotting With TD bo
TOM DeMARK
Most traders。are trend followers。 They accept the widespread belief that the trend is。a trader's。friend。 Many years。of exhaustive research and trading experience have convinced us。that this。notion is。flawed。 For the sake of pleteness； we have added a corollary to this。premise—the trend is。your friend； unless the trend is。about to end。
Human nature is。such that we are inclined to extrapolate current events。into the future。 Some expectations。have outes。that are immutable and universally applicable： The sun rises。in the morning and sets。in the evening。 Cut your hand with a knife and you will bleed。 Fall from an elevated level and gravity will pull you down。 There are no exceptions。 Other expectations。may be disappointed： Flip a light switch and a dark。room bees。bright—but what happens。if the electricity is。not in service？
Similarly； in terms of trading markets； as long as。buying pressure is greater than selling pressure； a market's。trend is。up； and； conversely； as。long as。selling pressure is。greater than buying pressure； a market's。trend is。down。 To expect that buying pressure will continue to exceed selling pressure and extend an uptrend indefinitely or that selling pressure will continue to exceed buying pressure and extend a downtrend indefinitely is。foolhardy。 No market trend continues。forever； just as。no tree grows。to the sky。 Market dynamics。are not dictated by the forces。that govern human nature。 Most traders。are content to trade fort…ably and with a trend； but what happens。when buying and selling pressure move into equilibrium or when buying pressure overes。selling pressure or when selling pressure overes。buying pressure？ During these transition periods。of buying and selling pressure； market fundamentals； news； and expectations。usually remain intact。 How