Tom DeMark Sequential Indicator

The Sequential Indicator (TD Sequential Indicator ®) was developed by Tom DeMark for FOREX market trading. It is also suitable for the commodities and options markets.
This indicator searches for counter-trends in order to anticipate and identify market reversal points. It provides signals on intraday as well as daily prices.
Generally, frequencies used in intraday ranging from 1 to 4 hours.

Calculation Method

The TD Sequential Indicator ® is composed of two figures called TD Setup and TD Countdown.

The TD Setup figure has the shortest duration (represented in green in the chart below). It consists precisely of 9 successive bars during which each closing price is lower ( for a Buy TD Setup) or higher (for a Sell TD Setup) than the closing price of the fourth preceding bar.
When this figure is formed, we determine if the TD Setup is "Perfect", that is, if the low (for a Buy TD Setup) or the high (for a Sell TD Setup) of the eighth or ninth bars is lower (for a Buy TD Setup) or higher (for a Sell TD Setup) than the lows (for a Buy TD Setup) or highs (for a Sell TD Setup) of the sixth and seventh bars.

The TD Countdown figure begins after the formation of a TD Setup (represented in red in the chart and below).
A TD Countdown consists of 13 bars where the closing price is lower than or equal to the low (for a Buy TD Countdown) or higher than or equal to the high (for a Sell TD Countdown) of the second preceding bar.
Unlike the TD setup, the TD Countdown does not need to have the 13 bars successively.
The TD Countdown is a much longer figure than the TD Setup and can take a long period to form.

Like the TD Setup, the TD Countdown can be "Perfect" and in this case represented by a solid vertical arrow in the chart below, otherwise the outline of the arrow is simply displayed. For a Perfect Buy Countdown, the low of the thirteenth bar must be lower than or equal to the closing price of the eighth bar. Conversely for a Perfect Sell Countdown, the high of the thirteenth bar must be higher than or equal to the closing price of the eighth bar.

The determination of the Stop loss level is fundamental for the use of the TD Sequential Indicator ®. It is calculated after the formation of the TD Countdown (and is represented by a horizontal dotted line in the chart below).
For a Buy signal, we determine the bar having the lowest low of the total period of the TD Countdown. Then we calculate:

Stop loss = L0 - Maximum (H0 - L0, H0 - C1)

where:

• H0: The high of this bar
• L0: the low of this bar
• C1: The closing price of the bar preceding this bar

or conversely for a Sell signal.

Example

Interpretation

The bars forming a TD Setup are marked from 1 to 9, in green vertically on each bar-chart.
Then the TD Countdown begins and the corresponding bars are marked from 1 to 13, in red vertically on each bar-chart.
A perfect Countdown (solid arrow) gives a buy signal followed slightly later by a non-perfect sell signal.

NOTE: When the TD Setup and TD Countdown are for buying, the count is written on the chart below the prices and conversely above the prices if for selling.

Remark

The figures for buying and for selling can be nested.

The indicator programmed in Axial Finance allows you to modify the number of bars for the formation of TD Setup (9 bars) and TD Countdown (13 bars) figures.