Thomas DeMark Sequential System
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Posting a chart showing today's TD combo sell signal in 5 min Nifty futures chart. Observe how Combo cought the exact high....the sell signal and the fact that 30 min TDST was at 5643.5 made this sell signal a very high confidence sell.....
If you plot sequential set up and count down , sequential gave a sell signal on the bar marked. This shows how combo speaks at the top and later sequential confirms at the secondary top.
Please note that the above is posted to show how it works in intraday short time frames and how both Combo and Sequential give same indication at different points.....
Smart_trade
Disclaimer : This chart is just for illustration. I do not recommend using Combo or Sequential for trades on shorter time frames or for day trading.......but these indications can be used to book profits at exact top/bottom of the move....
In my quest to understand Demark I came across this write up (actually sent to me by ccmb) on Demark Sequential used for Intraday with Elliot waves.. As neither Demark nor Elliot are as yet my cup of tea..it all Greek to me. Sharing here if it is worth anything for others :
I have used TD sequential for several years now, mainly intra-day.
It's a great idea as put by the discoverer, but unfortunately, if you trade the 9 count system as set out, you will invariably find all you do is lose money, except for the odd win.
So, is this mechanical trading system a true measure of price/trend exhaustion as claimed?
I guess it has to to have something going for it, as Bloomberg pay Tom De Mark to offer this indicator to the Institutional market on their terminal.
So, first a quick overview of the rules.
1. To begin TD sequential buy count, you need a price bar that closes higher than the bar 4 bars previous, immediately followed by a bar that closes lower than the bar 4 bars ago. This creates the price "flip". This lower bar becomes number 1 in the count.
2. Each subsequent bar then closes lower than the bar 4 bars earlier, until you have a count of 9.
3. The count is not complete until either the 8th or 9th bar of the count closes below the close of the 6th or seventh bar. If they don't you will need to wait till you have a bar close that satisfies this rule, preferably within the next 9 bars.
4. OK, so now you have your price exhaustion. You set a stop loss from the lowest price recorded in this series that is same range as that bar i.e range of bar =12 pips therefore stop is 12 below this low on the close. Note: this stop is on the close of a bar.
5. Your price target is the high of the 1st bar of the count.
That all seems simple enough. Now comes the filter that will give you the winning edge!
If you are familiar with Elliot wave theory, you will know that waves are broken into 2 categories; impulsive and corrective.
If you don't know how to tell the difference I suggest you read some of the fine EW theory post on this forum.
The cardinal rule I have found using TD sequential profitably is;
Only take the trades that result from corrective waves.......never take a trade off an impulsive wave, especially a 3rd wave!
Seems incredibly simple, but it works well.
A couple of other tips;
Best time frames to trade; 1min, 5min, 15 min, 1hour, 4hour, daily.
If your trade reaches it's price objective and slices through it like butter, move stop up to T1, and stay in the trade, it will often go another 61.8%. Otherwise, take your profit at, or just before, the price target. Remember, the Pro's trade this system, when you see price storm to the target, stop dead and reverse, you'll know what I mean.
This system works well for me intraday trading forex and indices. But it works really well on commodities daily, and many stocks.
I hope this has been of some use to you.
Have fun trading it!
DeMark TD Sequential- Tips for improving profitability when combined with Elliot wave
I have used TD sequential for several years now, mainly intra-day.
It's a great idea as put by the discoverer, but unfortunately, if you trade the 9 count system as set out, you will invariably find all you do is lose money, except for the odd win.
So, is this mechanical trading system a true measure of price/trend exhaustion as claimed?
I guess it has to to have something going for it, as Bloomberg pay Tom De Mark to offer this indicator to the Institutional market on their terminal.
So, first a quick overview of the rules.
1. To begin TD sequential buy count, you need a price bar that closes higher than the bar 4 bars previous, immediately followed by a bar that closes lower than the bar 4 bars ago. This creates the price "flip". This lower bar becomes number 1 in the count.
2. Each subsequent bar then closes lower than the bar 4 bars earlier, until you have a count of 9.
3. The count is not complete until either the 8th or 9th bar of the count closes below the close of the 6th or seventh bar. If they don't you will need to wait till you have a bar close that satisfies this rule, preferably within the next 9 bars.
4. OK, so now you have your price exhaustion. You set a stop loss from the lowest price recorded in this series that is same range as that bar i.e range of bar =12 pips therefore stop is 12 below this low on the close. Note: this stop is on the close of a bar.
5. Your price target is the high of the 1st bar of the count.
That all seems simple enough. Now comes the filter that will give you the winning edge!
If you are familiar with Elliot wave theory, you will know that waves are broken into 2 categories; impulsive and corrective.
If you don't know how to tell the difference I suggest you read some of the fine EW theory post on this forum.
The cardinal rule I have found using TD sequential profitably is;
Only take the trades that result from corrective waves.......never take a trade off an impulsive wave, especially a 3rd wave!
Seems incredibly simple, but it works well.
A couple of other tips;
Best time frames to trade; 1min, 5min, 15 min, 1hour, 4hour, daily.
If your trade reaches it's price objective and slices through it like butter, move stop up to T1, and stay in the trade, it will often go another 61.8%. Otherwise, take your profit at, or just before, the price target. Remember, the Pro's trade this system, when you see price storm to the target, stop dead and reverse, you'll know what I mean.
This system works well for me intraday trading forex and indices. But it works really well on commodities daily, and many stocks.
I hope this has been of some use to you.
Have fun trading it!
In shorter timeframes of 5 min/10 min or 30 min using TDST one can identify very good trading opportunities. I know a few intraday/short term traders who trade only set ups in 5/10 min timeframe and dont bother about count down phase.This way one can get plenty of trades even in short timeframes.
Posting yesterday's SBI Fut 5 min chart to illustrate how set ups and TDST lines alone can be used to trade profitably.
From A to B we have a sell setup completed and in the precess the red support sell TDST line is created. While forming this set up market took out the blue buy set up TDST resistance line giving us an opportunity to buy above this blue line.
Now see the supply/demand dynamics market now makes a buy set up in B to C and gives us a blue resistance line. Observe that while completing this buy set up, the red TDST support line remains intact.Market now makes another sell set up CD and breaks the blue resistance line. Here market is breaking the blue lines but holding the red support TDST ....market is announcing in very clear voice that it has no intentions of coming down but it wants to trade up....which it eventually did.....
So buying at point indicated gives a very low risk high probability trade ....and that too by just observing TDST and set ups....
Smart_trade
smart_trade, I have not read Demark's book so don't know much about these setups except that whatever I have read from your post.
Just a question that is bothers me - Does these counting of 9, 13, count of current bar wrt 4 bars back etc, has any psychological reasoning behind them ?
I fail to find those market psychological reasons to support this besides that it helps in catching that extreme emotional move of 5th wave.
Take your time to respond, or give me a pointer to read further on it.
Happy Trading
Just a question that is bothers me - Does these counting of 9, 13, count of current bar wrt 4 bars back etc, has any psychological reasoning behind them ?
I fail to find those market psychological reasons to support this besides that it helps in catching that extreme emotional move of 5th wave.
Take your time to respond, or give me a pointer to read further on it.
Happy Trading
AW10,
DeMark is a consultant to institutions, pension funds,hedge funds and his clients wanted to move size without rocking the boat too much. That is why he had to go for trend anticipatory and exhaustion identifying techniques rather than trend following techniques as when everyone is buying large institutions distribute their stock and vice versa.
He experimented with number of combinations of set up and counting comparisons....in his attempt to find exhaustion bottom and tops and this 9/13 worked well. This he had done manually with thousands of charts. This is a method of 1980 when computers were not so widely used even in US.
My view is when the market gets set up in a trend....its final top/bottom is decided , the course it takes depends on news, Government policies,economic data etc and if no major change in supply/demand equation, then it will top/bottom at a level which is decided well in advance based on how the trend gets kicked off...like a football when kicked in the air, has a fixed trajectory depending on how strongly it is kicked. Sequential and Combo help us to zero in on this final location of top/bottom .I tend to hold this belief because many times Sequential and Combo both different techniques ( and different ways of counting ) identify the tops/bottoms on exactly the same bar...isn't it amazing ?
There is cycles angle also to it...we all know that cycles exist in the markets and sequential is a mechanical way of finding cycle tops/bottoms rather than going with 60 days,180 days etc fixed days cycles. This way we continuously monitor the progress of the market in the current ongoing cycle.
Regarding Fibonacci...... 9 (set up bars ) +4 ( bars back close ) =13 also 13( number of Countdown bars ) ...and 13 is a Fibonacci number.
Smart_trade
DeMark is a consultant to institutions, pension funds,hedge funds and his clients wanted to move size without rocking the boat too much. That is why he had to go for trend anticipatory and exhaustion identifying techniques rather than trend following techniques as when everyone is buying large institutions distribute their stock and vice versa.
He experimented with number of combinations of set up and counting comparisons....in his attempt to find exhaustion bottom and tops and this 9/13 worked well. This he had done manually with thousands of charts. This is a method of 1980 when computers were not so widely used even in US.
My view is when the market gets set up in a trend....its final top/bottom is decided , the course it takes depends on news, Government policies,economic data etc and if no major change in supply/demand equation, then it will top/bottom at a level which is decided well in advance based on how the trend gets kicked off...like a football when kicked in the air, has a fixed trajectory depending on how strongly it is kicked. Sequential and Combo help us to zero in on this final location of top/bottom .I tend to hold this belief because many times Sequential and Combo both different techniques ( and different ways of counting ) identify the tops/bottoms on exactly the same bar...isn't it amazing ?
There is cycles angle also to it...we all know that cycles exist in the markets and sequential is a mechanical way of finding cycle tops/bottoms rather than going with 60 days,180 days etc fixed days cycles. This way we continuously monitor the progress of the market in the current ongoing cycle.
Regarding Fibonacci...... 9 (set up bars ) +4 ( bars back close ) =13 also 13( number of Countdown bars ) ...and 13 is a Fibonacci number.
Smart_trade
Last edited:
Sequential and Combo, a perspective from the Net :
Code:
The innovative approach proposed by Tom DeMark has changed the cyclical analysis
to a precise and scientific technique based on some mechanical calculations.
These allow us to identify in the cycles very significant price
tops and bottoms, which can become trend reversals in the market.
By those instruments the trader can choose a certain market position by
minimizing the risk .
There are two Trading Systems: the SEQUENTIAL and the COMBO.
They provide two indicators to enter into the market. The first entry signal comes
during the first cycle creation ;
it is weak and it is considered a set up for the second stronger entry signal
coming during the creation of the second cycle.
The first indicator is verified when the calculation produces 9 (sometime 8 )
consecutive bars.
The second one is verified when the calculation produces 13 (sometime 12)
NOT consecutive bars .
We have seen that the best time frame to consider is the daily (medium period) ,
which give a lesser margin of error .
Possible future set ups, that we can see during or after the count of 13(12) bars,
can make stronger the first set up.
For example, DeMark says that a very strong entry signal is verified when we have a
setup formation of 9(8) bars after
the count of 13, that is 9(8)+13(12)+9(8) bars.
In other words, to enter into the market after that configuration is not very risky .
If after the 13 bars what we are expecting does not happen, it is highly probable that the
cycle will continue to grow.
Therefore we will need to wait for a new set up and a new counting of 13 bars.
In any case we must always check both, the counting of the buy indicators and of the sell
indicators and evaluate at each time what it is the best thing to do. Because sometimes an entry
signal coming from one side can be neutralized by an entry signal coming from the opposite side.
SOME RULES
CORRECT ACTIVATION OF A BUY SETUP PHASE
On the fifth day preceding the first day of setup, the daily closing bar needs to be higher
than the daily closing bar of the day before the first day of Setup.
CORRECT ACTIVATION OF A SELL SETUP PHASE
On the fifth day preceding the first day of setup, the daily closing bar needs to be lower
than the daily closing bar of the day before the first day of Setup.
CANCELLATION
Cancellation means that the setup can be removed. As a consequence, the entry signal counting
goes back to its zero setting.
This can happen when:
REVERSE SETUP: it can occur when a contrary setup takes place after the setup and before the
completion of its counting phase.
LOWEST - HIGHEST SETUP: it can occur after the setup and before the completion of its counting phase.
This means that a daily closing bar lower than the lowest closing bar of the setup occurs during the
successive phase of the counting for the SELL signal.
Or a daily closing bar higher than the highest closing bar of the setup occurs during the
successive phase of the counting for the BUY signal.
RECYCLE (optional)
The setup is replaced by a subsequent setup going in the same direction. This only involves the
zero setting of the counting that might have started. The RECYCLE happens under the following
conditions:
A SETUP in the same direction of the first one takes place.
The high-low value of the second Setup (the difference between the highest maximum and the lowest
minimum of the Setup) is greater then the true range of the first Setup.
But not too much, says DeMark: in the sense that the true range of the second Setup is
smaller then the true range of the first Setup multiplied by a value between 1.618 and 3.
When one or both conditions b. and c. do not take place, the second Setup must be ignored,
i.e. the first Setup and the subsequent counting for the entry signal both go on living.
COUNTING FOR THE ENTRY SIGNAL
The 13th bar price needs to be higher than the 8th bar price
According to DeMark, the closing bar value of the 13th or subsequent yellow bar needs to be higher
than the bar closing value of the 8th yellow bar for the SELL signal; or lower for the BUY signal.
Then DeMark states also that the value of the 13th or subsequent yellow bar needs to be higher than
the closing value of 2 previous daily bars for the SELL signal; or lower for the BUY signal.
ENTRY SIGNAL
It takes place directly on the 13th (or 12th) bar.
We have an entry signal when, after the counting for the BUY Signal is finished, a counting
yellow bar is made on the opposite direction, that is to say on the counting for the SELL Signal.
In the same way we have an entry signal when, after the
counting for the SELL Signal is finished, a counting yellow bar is made on the opposite direction,
that is to say on the counting for the BUY Signal.
We have an entry signal when, after the counting for the BUY Signal is finished,
a Setup bar is made on the opposite direction, that is to say in the Setup SELL.
In the same way we have an entry signal when, after the counting for the SELL Signal is
finished, a Setup bar is made on the opposite direction, that is to say in the Setup BUY .
Further complicated rules can be used to understand when it is the right time to enter
into the market. But we use Sequential and Combo according to the analysis of the multi-cycles,
which we consider an effective tool.
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