Exaustion
Tom Demark Sequential - T.D. Sequential Tom Demark Sequential - T.D. Sequential
For the sake of not overloading you, I will cover the basics of the T.D. setup and a more advanced understanding of the T.D. countdown at a later time. This is very basic level understanding of the Tom Demark Sequential, once I have the second portion finished in a few days I will do another to cover trading strategies with the T.D.
1. Introduction
2. Terminology
3. Example
4. Conclusion
1. Introduction
The Tom Demark sequential is a great tool used by many traders. However, it is a complex indicator to trade with that uses simple calculations. The T.D. is an exhaustion cycle indicator that identifies trend reversal using exhaustion points numbered 1-9 with 9 being the potential exhaustion point and reversal of a trend.
The Tom Demark Sequential consists of two components. T.D. Setup is the first one and it is a prerequisite for the T.D. Countdown – the second component.
T.D. Setup compares the current close with the corresponding close four bars earlier. There must be nine consecutive closes higher/lower than the close four bars earlier.
The Tom Demark Sequential can be found in TradingView by searching within indicators like so:
imgur.com
2. Terminology
Bearish Price Flip - occurs when the market records a Close greater than the Close four bars earlier, immediately followed by a Close less than the Close four bars earlier.
Bullish Price Flip - occurs when the market records a Close less than the Close four bars before, immediately followed by a Close greater than the close four bars earlier.
T.D. Buy Setup - bearish price flip, which indicates a switch from positive to negative momentum.
- After a bearish price flip, there must be nine consecutive closes, each one less than the corresponding close four bars earlier.
- Cancellation - If at any point, a bar closes higher than the close four bars earlier the setup is canceled and we are waiting for another price flip
- Setup perfection – the low of bars 8 or 9 should be lower than the low of bar 6 and bar 7 (if not satisfied, expect new low/retest of the low).
T.D. Sell Setup - prerequisite is a bullish price flip, which indicates a switch from negative to positive momentum.
- After a bullish price flip, there must be nine consecutive closes, each one higher than the corresponding close four bars earlier.
- Cancellation - If at any point a bar closes lower than the Close four bars earlier, the setup is canceled and we are waiting for another price flip
- Setup perfection – the high of bars 8 or 9 should be greater than the high of bar 6 and bar 7 (if not satisfied, expect new high/retest of the high).
3. Example
The chart above is Bitcoin on a 6 hour time frame with Heikin-Ashi candles (I will explain why in a later post). The T.D. is far more accurate on higher time frames. It can be used on lower time frames for entry and exits. However, I have found that precise entry and exit targets are best found with other indicators. I typically see the most accuracy with the T.D. on a 4 hour time frame or higher.
Noted on the chart is several Buy/Sell setups in addition to failed setups. The reason I am using such a poor example of the T.D. is I want to impress upon you the dangers of using only one indicator when making decisions. Not every indicator is 100% accurate. As good and intelligent practice, you should always use the T.D. with additional data.
