Thomas DeMark's Sequential (tm) System Basically the criteria are as enumerated below, however, to appreciate the rational and nuances you are urged to read Ch. 7 of his book. The system is divided into three distinct stages, A. Set up, B. Count Down, and C. Entry. A. Set Up Criteria 1. For a Buy signal. Nine consecutive daily price closes which are lower than the close four days earlier. For a Sell signal. Nine consecutive daily price closes which are higher than the closes four days earlier. 2. An Absolute Prerequisite The day prior to the first day of a nine consecutive set up sequence must: for a buy signal have a close higher than or equal to the close four days earlier, for a sell signal have a close lower than or equal to the close four days earlier. B. Count Down For a buy signal, following the successful completion of the count down we wait for thirteen closes which are lower than the close two days earlier (not consecutive, in fact extremely unlikely to be so). For a sell signal, after successful set up, wait for thirteen closes which are higher than the close two days earlier. C. Entry On successful completion of set up and count down we now have a choice: a) Enter on the close of the day that the count down is completed, i.e. the close of the thirteenth defined close. This is the most aggressive and highest risk entry but most closely approximates the exact high or low of the trend about to be reversed. However, it is the entry most likely to be whipsawed if the Sequential fails. Entry after reversal b) On a close higher for a buy (lower for a sell) than a close four days earlier after the count down has been concluded, i.e. post reversal. c) On a close higher for a buy (lower for a sell) than the high (low) tw o days earlier after conclusion of the count down, i.e. a compromise between a) and b).
Figure 1 shows the bear market of the U.S.$ Index for much of 1994. It is in daily price candlestick format for easy recognition of closes. The nine consecutive lows of the count down are enumerated (19) and the prerequisite day is marked P. The subsequent thirteen lows are enumerated (1-13). The buy entries as recommended are designated a, b and c respectively. Buy signals were on the close a) Oct. 20, 94, b) Oct. 28, 94 and c) Oct. 28, 94.
Figure 2 shows the same price chart with Wilder's Parabolic. His SAR buy was given after the close on Nov. 2, 94.
Figure 3 shows the 40 day MA of the U.S.$ Index with 1.5% and 3% channels about the average and the most recent down trend line and its subsequent violation. The lower, outer channel contained the final decline. Price breaking above the final down trend line occurred on Nov. 9, 94 and above the 40 day MA (a moving trend line) on the same day. Which is also the day when the second area of resistance (second interim high after the low) was violated.
Figure 4 shows the 5:80 DCCI of the same price sequence. This gave a buy alert after the close on Oct. 25, 94. When my MAPC/DCCI system gave a buy alert it was reasonable to expect that only a minor correction was afoot. The buy signal would be confirmed on a close above the down trend line, in this case it would have occurred after the close Nov. 9, 94. Because of Thomas DeMark's book and my review of its Sequential system application over many markets I decided to enter on his b) recommended entry, i.e. on completion of the set up and the subsequent close higher than a close four days earlier, the more conservative entry. In this case entry was after the close of Oct. 28, 94. Thomas DeMark addresses the subject of Stops for entry into his Sequential trades. I will not review them. Stops are a very difficult decision to make and are as personal as underwear. I use Wilder's Parabolic as an initial stop. At the time of my entry no such stop was indicated but by definition it would be the low of the reversal and so it was. A currency valuation is a relative value viz a viz another currency. When the U.S.$ rallies the Euro Currencies and J.Yen are likely to decline. Use of DeMark's Sequential (tm) to define the best currency to have sold against the U.S.$ indicated it to be the S.F ranc. Incidentally the S.Franc on a fundamental basis was the most over valued currency against the U.S. dollar, over 70% on a Purchasing Power Parity basis. Figures 5-8 outline the analysis and entry of the short sale in the S.Franc which topped out slightly ahead of the bottoming of the U.S. dollar.
Figure 5 shows the bull market of the S.Franc for much of 1994. It is in daily price candlestick format for easy recognition of closes. The nine consecutive highs of the count down are enumerated (1-9) and the prerequisite day is marked P. The subsequent thirteen highs are enumerated (1-13). The sell entries as recommended are designated a, b and c respectively.
Buy signals were on the close a) Oct. 17, 94, b) Oct. 25, 94 and c) Oct. 21, 94.
Figure 6 shows the same price chart with Wilder's Parabolic. His SAR sell was given after the close on Oct. 28, 94.
Figure 7 shows the 40 day MA of the S.Franc with 2.0% and 4.0% channels about the average and the most recent up trend line and its subsequent violation. The upper, outer channel was marginally violated by the final advance. Price breaking below the final up trend line occurred on Nov. 2, 94 and gapped below the 40 day MA (a moving trend line) on Nov. 9, which is also the day when the second area of support (second interim low after the high) was violated.
Figure 8 shows the 5:80 DCCI of the same price sequence. This gave a sell alert after the close on Oct. 25, 94. With similar reasoning I went short the S.Franc on DeMark's b) entry on Oct. 25, 94 with a stop at the high of the reversal. So I entered profitable complementary trades ahead of my usual entry with a closer stop
