Through a multi-phase price comparative process consisting of the Setup and Countdown indicators, the Sequential indicator analyzes otherwise incongruent price data to provide insight into the strength or weakness of the market’s trend and its likelihood of reversing
The majority of the DeMARK Indicators are designed to anticipate price exhaustion as opposed to following the trend. Identifying likely inflection points provides an ideal opportunity to buy into weakness and sell into strength, ensuring an improved cost basis and the ability to gradually build a position.
Figuratively speaking, markets top not because of smart sellers, but because the last buyer has bought. Conversely, markets bottom not because of smart buyers, but because the last seller has sold.
Market tops and bottoms are typically associated with an overwhelming belief that the trend will continue. While many espouse the long-held expression that, “the trend is your friend,” we believe it’s important to add the corollary, “unless the trend is about to end.”
Identifying probable points of inflection improves your cost basis, decreases your risk and allows you to participate in a greater portion of the market’s subsequent trend.
Sequential introduces precision and objectivity into market timing by identifying areas at which market tops and bottoms are likely.
A Buy Setup occurs when there are 9 consecutive closes less than the close four bars earlier. A Sell Setup occurs when there are 9 consecutive closes greater than the close four bars earlier.
Setups can be classified as either “Perfected” or “Im-perfected.” The Setup is classified as “Perfected” when the 9 is completed and the 6 and 7 bars have been exceeded. The point at which the Setup is perfected is displayed with an arrow.
The TD Setup Trend (TDST) indicator is derived from use of the Setup indicator to confirm market trends and likely trend failures. The TDST indicator is used to establish reference levels from the lowest true low and the highest true high of recent underlying trends, providing market support and resistance to help evaluate the integrity of its price movement.
Countdown is calculated by comparing the close of the current bar to the high or low two bars earlier. Each fulfilled comparison produces a number, which helps to describe the stage of the current trend. Once the series reaches a 13 the market is prone to a reversal, with the Risk Level defining the zone within which the trend should reverse, and the 12-bar rule defining the time within which it should do so.
Unlike the Setup phase, Countdown does not require that the counts be consecutive. As a result, Countdown can occur in both trending and trading range markets.
The Risk Level identifies the potential residual trend momentum once Countdown is completed. The Risk Level is often considered a secondary level of price exhaustion, not only defining the zone in which the market is primed for a reversal but also providing support/resistance to the chart.
When a Countdown series is completed a Risk Level is generated, identifying the zone within which there should be a reversal, as well as the amount of residual momentum the trend could experience and yet still preserve the buy or sell reading. The Risk Level associated with a completed Buy Countdown represents the price above which the 13 buy remains active, and serves as support on weakness; conversely, the Risk Level associated with a completed Sell Countdown represents the price below which the 13 sell remains active, and serves as resistance on strength. It is helpful to think of this level as the maximum threshold that the price exhaustion series can withstand before the momentum overwhelms the signal and renders it ineffective.
As with many other DeMARK Indicators, the qualified and disqualified Breakout Rules apply to help gauge whether or not the Sequential signal remains intact.
The 13 vs. 8 Countdown Deferral rule is designed to ensure that the tail end of the Countdown phase is representative of the existing trend as opposed to market noise due to an early break in the trend. To fulfill this qualifier, the high of the 13 bar must be greater than or equal to the close of the 8 bar in the case of a Sequential sell, while the low of the 13 bar must be less than or equal to the close of the 8 bar in the case of a Sequential buy. Because the Countdown can accrue in a sideways market, requiring the 13 to exceed the 8 bar’s close, be it upside or downside, assures that there is some trend intact and provides a higher level of accuracy as the chart reaches its completion.
The Countdown Deferral condition is represented by a ‘+’ and indicates that the Countdown requirement was met but the 13 vs. 8 rule was not fulfilled, thereby postponing the count.
Whereas the 13 vs. 8 Countdown Deferral rule is designed to ensure that the tail end of the Sequential series is representative of the existing trend, the 8 vs. 5 Countdown Deferral rule is designed to ensure that the body of the Countdown phase is properly configured. The 13 vs. 8 comparison is critical to the Countdown phase, while the 8 vs. 5 comparison is elective and affords greater comfort that the trend has remained intact.
The fundamental picture is constantly evolving to reflect new information. Just as the fundamentals experience occasional adjustments impacting the expectations of the asset, so too do technical analysis and market timing. This is most often reflected in Sequential by a process known as Recycling.
Recycling occurs when a Countdown is interrupted by a subsequent Setup of certain criteria in the same direction. Recycling suggests that the new trend is strong enough to weaken the impact of a confirmed Countdown series and resets the process.
Two situations can cause the Sequential reading to Recycle. Either the overlapping Setup continues beyond its minimum requirement of 9 consecutive closes greater than/less than the close four bars earlier, reaching a count of 22. Alternatively, the size of the more recent Setup, as measured by the difference between the highest true high and lowest true low of the series, is between 100% – 200% of the size of the prior Setup.
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