408# Thomas DeMark's Sequential (tm) Trading System
Tom DeMark Trading Method
Submit by Janus Trader (written by HedgeHog Financial ) 10/11/2012
Basically the criteria are as enumerated below, however, to appreciate the rational and nuances you are urged to read Ch. 7 of this book. The system is divided into three distinct stages, A. Set up, B. Count Down, and C. Entry.
A. Set Up Criteria
1. For a Buy signal. Nine consecutive daily price closes which are lower than the close four days earlier.
For a Sell signal. Nine consecutive daily price closes which are higher than the closes four days earlier.
2.An Absolute Prerequisite
The day prior to the first day of a nine consecutive set up sequence must:
for a buy signal have a close higher than or equal to the close four days earlier,
for a sell signal have a close lower than or equal to the close four days earlier.
B. Count Down
For a buy signal, following the successful completion of the count down we wait for thirteen closes which are lower than the close two days earlier (not consecutive, in fact extremely unlikely to be so).
For a sell signal, after successful set up, wait for thirteen closes which are higher than the close two days earlier.
On successful completion of set up and count down we now have a choice:
a) Enter on the close of the day that the count down is completed, i.e. the close of the thirteenth defined close. This is the most aggressive and highest risk entry but most closely approximates the exact high or low of the trend about to be reversed. However, it is the entry most likely to be whipsawed if the Sequential fails.
b) On a close higher for a buy (lower for a sell) than a close four days earlier after the count down has been concluded, i.e. post reversal.
c) On a close higher for a buy (lower for a sell) than the high (low) two days earlier after conclusion of the count down, i.e. a compromise between a) and b).
In the pictures below Tom DeMark Trading Method in action.
Figure 1 shows the bear market of the U.S.$ Index for much of 1994. It is in daily price candlestick format for easy recognition of closes. The nine consecutive lows of the count down are enumerated (1-9) and the prerequisite day is marked P. The subsequent thirteen lows are enumerated (1-13). The buy entries as recommended are designated a, b and c respectively.
Buy signals were on the close a) Oct. 20, 94, b) Oct. 28, 94 and c) Oct. 28, 94.
Thomas DeMark addresses the subject of Stops for entry into his Sequential trades. I will not review them. Stops are a very difficult decision to make and are as personal as underwear. I use Wilder's Parabolic as an initial stop. At the time of my entry no such stop was indicated but by definition it would be the low of the reversal and so it was.
A currency valuation is a relative value viz a viz another currency. When the U.S.$ rallies the Euro Currencies and J.Yen are likely to decline. Use of DeMark's Sequential (tm) to define the best currency to have sold against the U.S.$ indicated it to be the S.Franc. Incidentally the S.Franc on a fundamental basis was the most over valued currency against the U.S. dollar, over 70% on a Purchasing Power Parity basis. Figures 5-8 outline the analysis and entry of the short sale in the S.Franc which topped out slightly ahead of the bottoming of the U.S. dollar.
I think that this strategy generates false signals. But entering at the breakout of the second bar of the sequence with profit target fast can be profitable.
Go shortat the next trading bar if the price goes below today’s low – 5 pips.
Go longat the next trading bar if the price goes above today’s high + 5 pips.
Profit Target daily time frame 40- 60 pips depends by currency pairs.
Profit Target 4h time frame 18-30 pips depends by currency pairs.
Tom Demark TD Trading System
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Countertrend forex trading with TD Sequential