Sequential Signals

BY MARK ETZKORN

©2001, Reprinted with permission of Active Trader magazine (www.activetradermag.com)

One of Tom DeMark’s primary price exhaustion indicators is called TD Sequential. It identifies turning points based on the relationship of closing prices over a certain period of time. DeMark has developed several versions of Sequential, some more aggressive than others. Here, he describes the basic Sequential signals that appeared on a daily and an intraday chart.

“The Clear Channel Communications (CCU) chart demonstrates the tendency of markets to reverse once the minimum requirement for a TD Sequential buy or sell setup is completed: Nine consecutive closes lower than the close four days earlier, or nine consecutive closes above the close four days earlier, respectively. It is important that either price bar 8 or 9 exceed both bars 6 and 7 of the setup.

“The solid horizontal lines — TDST lines — extend from the highest price of the setup period for a buy setup and the lowest price of the setup period for a sell setup. Price has a tendency to gravitate to and be repelled by this trend-confirming indicator.

“When a market continues to go lower or higher after the setup phase, you go into the ‘countdown’ phase: In the case of a sell signal, you take the close of day 9, and every subsequent day, and compare them to the highs two days earlier. When there are 13 closes greater than the high two days earlier, it’s a low-risk sell point. The 15- minute September 2001 S&P futures (SPU01) chart illustrates a TD Sequential 13 sell indication. This occurred just before the Fed’s announcement on interest rates on Aug. 21.”

See also: Tom DeMark: Objectively Speaking