Tom DeMark’s TD Sequential Indicator's general objective is that of identifying a point in time where price (either in an uptrend or downtrend) exhausts itself and reverses.
TD Sequential Consists of 2 Main Components:
TD Setup demonstrated clearly on SPY(SP500) in early 2018. The index topped on a "Setup 9 Sell Series" and then found an immediate bottom on a "Setup 9 Buy Series".
- "Setup Series" look back 4 bars (or candles) prior
- Buy Signal - 9 consecutive price bar closes that are less than the close 4 price candles earlier
- Sell Signal - 9 consecutive price bar closes that are greater than the close 4 price candles earlier
- "Buy Setup Series" initiates when close of current candle is lower than the close of the candle 4 prior (higher close for a "Sell Setup Series")
- Candle 2 of the series is recorded if the close is lower than the close of the candle 4 prior (higher close for a "Sell Setup Series")
- This count continues as long as the count isn't broken (each candle must close lower than 4 candles prior)
- The Setup Series completes on candle 9 if the series isn't broken before then
- The completion of a "Setup Series" confirms strong-momentum in its direction
It's the candle 9 where 1 of 3 things can happen (and why our screeners alert traders to these powerful 9s)
- Price will pause momentarily
- Price will pull back
- Price Reversal (market correction)
TD Countdown(bottom numbers 1-13) demonstrated clearly on TRX/BTC chart late 2017/early 2018. TRON topped on a "Setup 9 Sell Series" and a "Sequential 13 completed Countdown" for the same Daily Candle (powerful combination).
- "Countdown Series" depend upon the completion of a "Setup Series"
- Buy Signal - 13 price candles where each close is less than or equal to the low 2 price candles earlier
- Sell Signal - 13 price candles where each close is greater than or equal to the low 2 price candles earlier
- When the 9 count completes on a Setup Series (rules vary but generally CLOSE of candle 9 must be lower than the LOW of candle 7(in a Sell Series)) A countdown series can then begin its count to 13.
- "Countdown Series" look back 2 bars (or candles) prior
- The close of the current candle needs to CLOSE lower than the LOW of the candle in a "Buy Countdown Series" to qualify
- "Countdown Series" doesn't need to be consecutive candles like the "Setup Series"
- "Countdown Series" will continue until 13 count is finished or the series is cancelled (some of those rules are below)
- "Countdown Series" cancelled if a "Sell Setup Series" completes (upwards price trend) before the completion of the "Countdown Series"
- "Countdown Series" cancelled if a candle of the current series makes a CLOSE greater than the highest high of the previously completed "Buy Setup Series" (closing higher than the TDST(covered below) line.)
- Completion of the "Countdown Series" tells you the trend has likely reached exhaustion
Other TD Sequential Components:
TDST (Setup Trend Line)
TDST support (green dots), TDST resistance (red dots), "Setup Series" (numbers above candles), and "Countdown Series" (numbers below candles) all visible on recent 4h Chart of BTC/USD
- TDST, also referred to as "Setup-Trend-Line" appears upon the completion of a "Sell Setup" or "Buy Setup" series
- TDST Support (green dots in the above image) occur on the completion of a "Sell Setup" with the support line becoming the lowest LOW of the completed series. May 1st in the chart above marked the lowest low for "Sell Setup" series which completed on May 3rd.
- TDST Support (green dots in the above image) will remain until a candle for the given timeframe registers a close lower than the TDST Support line (May 11th in the above image)
- TDST Resistance (red dots in the above image) occur on the completion of a "Buy Setup" with the resistance line becoming the highest HIGH of the completed buy series (May 6th in the chart above).
- TDST Resistance (red dots in the above image) will remain until a candle for the given timeframe registers a close higher than the TDST Resistance line(hadn't occured in the above chart)
- Breaking below TDST Support (closing below green dots) can be thought of as a reversal in the trend. On May 11th in the above chart, TDST Support of 8 days was broken and we can expect continued downside
- Conversely, closing above the TDST Resistance (9,900 in the above chart created by the completion of a "Buy Setup Series" on May 7th) would signal a bullish change in price momentum.
- It's important that price registers a CLOSE above/below the TDST lines in order to consider them broken. You'll often see price dip above/below these lines but then reverse sharply as the TDST lines hold(hence support/resistance)
The beauty of the Sequential System developed by Tom Demark is not the math or rules its based on, but the sheer number of creative ways in which it can be traded. Here at TradeThe9s, we will not tell you how to trade the indicators or give absolute buy or sell advice. But what we will do is provide a general introduction into this fantastic indicator and the following:
Watch for the following in our Blog:
- Perfected Setups
- Imperfected Setups
- Combo Indicator vs. Sequential Indicator
- Aggressive Indicator vs. Sequential Indicator