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Marek,
Below a detailed explanation of DeMark's Sequential which allows to
identify very low risk buy/sell levels.
The Sequential is compound of 2 main phases:
1)SETUP
2)COUNTDOWN
SETUP
The initial SETUP phase consists of a series of at least (9) nine
consecutive closes lower than the close four trading bars earlier
C<Ref(C,-4) for a BUY SETUP and at least (9) nine consecutive closes
higher than the close four trading bars earlier C>Ref(C,-4) for a
SELL SETUP. SETUP establishes the environment or the context for the
market and determines whether a trader should be looking to buy or
sell the market.
This is the text-based approach but nothing prohibits to use (ie),
rather than the close,the high or the low or the Typ() or the Mid()
or change the period of reference (3 / 5 bars earlier).
The bar that precedes the first bar of the SETUP must respect the
opposite condition: C>Ref(C,-4) for BUY SETUP and C<Ref(C,-4) for
SELL SETUP.
When the SETUP is perfected, the second phase starts: the COUNTDOWN,
with two alternative ways:
a)at the simple attainment of the 9th bar that respects the above
mentioned condition.
b)at the INTERSECTION:once the SETUP series has been defined,review
price activity beginning on day 8 of SETUP to determine whether the
SETUP process has been perfected and countdown is allowed to begin.
To accomplish this,it is required a phase called INTERSECTION.
INTERSECTION requires the high of bar 8 of a BUY SETUP be greater
than or equal to the low of bars 5, 4, 3, 2 or 1 of the BUY SETUP
(that's the lowest low of the SETUP recorded three or more bars
earlier all the way back to bar one of the BUY SETUP) . If this
requirement is not met, then the high of bar 9 of the BUY SETUP must
be greater than or equal to the low of BUY SETUP bar 6 or any other
price bar back to bar 1 of the BUY SETUP. If this is not fulfilled,
then each successive price bar is compared until its high is greater
than or equal to the low of the price bar three or more price bars
earlier back to bar 1 of the BUY SETUP.
For INTERSECTION to occur in a SELL SETUP, the low of SETUP price bar
8, 9 or the first subsequent bar must be less than or equal to the
highest high of the SETUP recorded three or more price bars earlier
all the way back to bar 1 of the SELL SETUP.
INTERSECTION is a required step because it assures that the rate of
decline or advance is decelerating sufficiently to enter the final
phase, which is the COUNTDOWN.
NOTE:according to DeMark the 1st solution is to be preferred in case
of futures or commodities,while in case of stocks the choice must
fall on the 2nd solution.
Perfected the SETUP,the CANCELLATION can happen,that is its
removal ,with consequent zero setting of the eventual COUNTDOWN that
had followed up.
The CANCELLATION occurs in the following cases:
a)REVERSE SETUP:if a CONTRARY SETUP is perfected after the
accomplishment of the SETUP and before the subsequent phase of the
COUNTDOWN has been completed; ie. after a BUY SETUP and before the
subsequent BUY COUNTDOWN is completed a SELL SETUP happens.
b)HIGHEST/LOWEST SETUP:after the accomplishment of the SETUP and
before the subsequent phase of the COUNTDOWN has been completed, it
happens that a close is higher than the HIGHEST HIGH of the SETUP in
case of BUY SETUP or a close is lower than the LOWEST LOW of the
SETUP in case of SELL SETUP .
For being accurate,we don't have to limit ourselves to consider as
reference just the HIGHEST HIGH or the LOWEST LOW of the SETUP,but it
is necessary to consider also the close (note:the close exclusively
no other data array) of the bar prior the 1st bar of the SETUP
itself.
This particular close becomes the point of reference with the aim of
the cancellation only if it turns out greater than the highest high
or lower than the lowest low of the SETUP.
c)RECYCLE,which is only optional, is the substitution of the SETUP
with a subsequent one that goes in the same direction and involves
just the zero setting of the COUNTDOWN that eventually has begun. The
RECYCLE happens when these conditions concur jointly:
1) a 2nd SETUP occurs in the same direction of the previous one;
2) the high/low true range of the 2nd SETUP turns out greater than
the true range of the 1st SETUP, ...yet "not too much":in the sense
that the true range of the 2nd SETUP must be smaller than the true
range of the 1st SETUP multiplied by a value between 1.618 and 3.0
according to DeMark; if one of the conditions ((1) or (2)) fails then
the 2nd SETUP is to be ignored, so the 1st SETUP and the subsequent
COUNTDOWN are valid.
"Recycling" is a concern that could arise in a strongly trending
market. Generally speaking, if a subsequent SETUP occurs prior to
completion of COUNTDOWN, then a new COUNTDOWN process must begin.
COUNTDOWN
The last phase of the Sequential is the so called COUNTDOWN,which
begins at the last bar of the SETUP (that's the 9th or the next bar
that satisfies the INTERSECTION criteria).
The COUNTDOWN is perfected and with that also the Sequential if:
at least 13 bars,also not consecutive,that observe the condition C<Ref
(L,-2) for the BUY COUNTDOWN or C>Ref(H,-2) for the SELL COUNTDOWN.
Whereas SETUP requires the price comparisons be maintained
consecutively,COUNTDOWN does not apply such restrictions. To prevent
high-level, low-risk BUY COUNTDOWN 13 entries and low-level, low-risk
SELL COUNTDOWN 13 entries,it has been installed the requirement that
day 13 of a BUY COUNTDOWN be postponed until it occurs below day 8 of
the BUY COUNTDOWN and, conversely, that day 13 of a SELL COUNTDOWN be
postponed until it occurs above day 8 of the SELL COUNTDOWN (that's:
it's necessary that in a BUY COUNTDOWN the Close (or other preferred
data array) of the bar where COUNTDOWN (=13) be lower than the Close
of the bar where COUNTDOWN (=8) and in a SELL COUNTDOWN the Close (or
other preferred data array) of the bar where COUNTDOWN (=13) be
higher than the Close where COUNTDOWN (=8).
According to DeMark these are the classic settings,but he asserts
that in some cases it can be useful to use the High or the Low in
place of the Close,or change the lapse of time,or even consider the
signs >= or =<.
Particular circumstance:only and when COUNTDOWN (=12) turns out
already and the Close data array is used as standard for the
calculation of the COUNTDOWN,in order to arrive to the fateful
COUNTDOWN (=13) can be used,as an exception,the Open or the Low in
case of BUY COUNTDOWN and the Open or the High in case of SELL
COUNTDOWN (this is the so called TERMINATION COUNT).
TRADING SYSTEM:
DeMark identifies the following possible entry options at the
accomplishment of the COUNTDOWN:
a) directly on the 13th bar of the COUNTDOWN.
b) when,perfected the COUNTDOWN, a bar forms with an open-close
sequence that moves in opposite direction to the formation of the
COUNTDOWN.
c) when,perfected the COUNTDOWN,a C>Ref(H,-2) forms in case of a
BUY COUNTDOWN or a C<Ref(L,-2) in case of a SELL COUNTDOWN .
d) when,perfected the COUNTDOWN,a C>Ref(C,-4) forms (BUY COUNTDOWN)
or a C<Ref(C,-4) forms (SELL COUNTDOWN) (that's a contrary SETUP is
beginning).
A strong signal according to DeMark is the 9-13-9 formation,that's
the forming of a SETUP in the same direction of the previous
COUNTDOWN:in other words it's very low risky a buy after a BUY SETUP
following up a BUY COUNTDOWN and viceversa for a sale.
Equally important the event in which a confirmation turns out on
various TIME FRAMES.That's on a Time frame (weekly) a BUY SETUP forms
and on the shorter Time frame (daily) a complete BUY COUNTDOWN
finishes.
Finally about Stop-loss topic DeMark recommends quite a few:
the most important consists in taking as reference the range high-low
of the bar in correspondence of which the lowest low of the
COUNTDOWN has taken place (in the case of a BUY COUNTDOWN, otherwise
the highest high in the case of a SELL COUNTDOWN) and projecting
this value from the low of the same bar in the case of a BUY
COUNTDOWN or from its high in the case of a SELL COUNTDOWN.
This limit, De Mark says, is to be used as stop-and-reverse: if the
movement does not invert in correspondence of the 13th bar of the
COUNTDOWN, means that it is very strong and that it can still
continue a long time.
Although TD Sequential has worked effectively on a daily basis for
more than two decades, only within the last five years has it become
apparent that this technique can be applied to intraday price charts
as well. Because it originally was designed to be applied to longer
time periods, its ability to identify high- and low-risk entry zones
on an intraday basis is a testimony to its adaptability and dynamic
design.
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