TD Sequential is a technical indicator developed by Tom DeMark, designed to identify market turning points by analyzing sequences of closing prices relative to prior periods’ closes. Traders primarily use this indicator to forecast potential trend reversals. TD Sequential consists of two main components—Setup and Countdown—which together form a full TD Sequential cycle. Below is an outline of how each component works and how it’s applied.
Setup
The Setup comprises nine consecutive bars (candles), each of which must meet specific criteria relative to the close four bars earlier. For a bullish Setup, each of the nine bars must close higher than the close four bars back. For a bearish Setup, each bar must close lower. Completion of the nine-bar Setup suggests the current trend may be exhausted and that a reversal could be imminent.
Countdown
Once the Setup is complete, the Countdown phase begins. In an uptrend, each bar must close above the lows of two bars earlier; in a downtrend, each bar must close below the highs of two bars earlier. The Countdown continues until thirteen bars meet these conditions.
Application
TD Sequential is used to pinpoint times when the probability of a trend change is elevated. Traders can use it to plan entries and exits, especially when combined with other technical analysis methods to improve their odds. It’s important to remember that no indicator is infallible, and market risk always exists.
Practical Tips
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Monitor Setups and Countdowns Across Timeframes: Checking multiple intervals can give a fuller picture of trend strength.
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Combine with Support and Resistance: Overlaying TD Sequential signals with key price levels can enhance signal reliability.
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Wait for the Full Countdown of 13: Acting prematurely before the 13th bar may increase risk.
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Use Risk Management: Always set stop-losses to protect against unexpected market moves.
TD Sequential is an advanced tool that can be highly effective in the hands of an experienced trader. Understanding its mechanics and applying it correctly can help boost trading performance in financial markets.
