DeMark’s Sequential

DeMark Indicators are designed to anticipate turning points in the market.

Tom DeMark created a strategy called a sequential that finds an overextended price move, one that is likely to change direction and takes a countertrend position.

To get a buy signal, the following three steps are appliedto daily data:

1) Setup.  There must be a  decline of at least nine or more consequtive closes that are lower than the corresponding closes four days ealier.  If today’s close is equal to or greater than the close four days before, the setup must begin again.

2) Intersection.  To assure prices are declinging in an orderly fashion rather than plunging, the high of any day on or after the eighth day of the set up must be greater than the low of any day three or more days earlier.

3) Countdown. Once setup and intersection have been satifiedm we count the number of days in which we close lower than the close two days ago (doesn’t need to be continuous). When the countdown reaches 13, we get a buy signal unless one of the following occurs:

a. There is a close that exceeds the highest intraday high that occured during the setup stage.

b.  A sell setup occurs (nine consequtive closes above the corresponding closes four days earlier).

c.  Another buy setup occurs before the buy countdown is completed.

Traders should expect that the development of the entire formation take no less than 21 days, but more typically 24-39 days.

Luckily there are many systems avaliable which do the counts for us.  Bloomberg is one such example.

Source: New Trading Systems and Methods 4th ed., Perry J. Kaufman, p.148