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:
https://imgur.com/XBIlwkR
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.
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:
https://imgur.com/XBIlwkR
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.
Comment:
Somehow the entire ending of this linked to one of the resources I was quoting instead of adding the url. My apologies as I cannot edit it.
All posts are for educational purposes and are simply my views of markets conditions.
Please do your own research and use my content to educate yourself.
Please do your own research and use my content to educate yourself.
The T.D. is a great tool to add to your arsenal. Despite its inefficiencies, it is one of the most valuable indicators there is. I personally have used it for years and have made a lot of huge decisions based on it with other indicators. It does weigh greatly in my decision making process.
One thing to keep in mind is that the T.D. is not a GOD indicator for momentum shift and should be used in conjunction with other indicators on multiple time frames. Remember higher time frames always trump smaller ones when it comes to true price action.
Higher time frames give me the larger trend picture when deciding my smaller time frame moves. Cycle thru the various time frames of an asset when deciding the trend.
Example: The weekly shows a clear bullish trend. However, the daily shows a possible bullish price flip, one can infer that the bear trend on the daily will be short lived or non existent.
Cryptocurrencies have generally been a parabolic asset, so as you begin to use the T.D. Sequential you will notice that it is not always 100% accurate in identifying trend reversal. When Cryptocurrencies move they generally move in large chunks which can create some inefficiencies with identifying trend reversals. But it is a fantastic tool to use in conjunction with your trading strategy.
Resources quoted:
Additional studies can be found on the TradingView Tom Demark Sequential page. I believe a majority of the Technical Analysis is my own there.
www.tradingview...s/tdsequential/?sort=most_...
Also Tone Vays offers a modified version that has greatly improved this version, I typically use his in my analysis, this one above is the default one on TradingView since not everyone has access to Tone's.
Click like on this if you would like to learn about arming yourself with more trading tools. Thanks!