Tom Demark Sequential 9

The Tom Demark Sequential 9 (TDS 9) is a leading indicator which identifies a turning point in a price trend for a security. It does this by running count of price bars to gauge trend exhaustion.

It is a counter-trend tool that aims to solve the problem of several TA indicators that are profitable during trending markets but perform very poorly in ranging markets. TDS 9 can be used in any timeframe and in any market conditions.

The TD Setup takes place after a price reversal and includes a 9-candle count. If the 9-candle count is completed, the TD Sequential identifies a point of a likely top or bottom. (trading signal)

An initial starting number '1' is plotted if a candle manages to close higher than the close of a candle 4 periods ago. Consequently, the 2nd number '2' is plotted only if the 2nd candle manages to close higher than the close of the candle four 4 periods ago. The point of reversal comes when the TDS plots the number '9' on top of a candle. In other words, when 9 consecutive candles managed to close higher than the candles of 4 periods earlier. If at any point, a candle closes lower than the candle 4 periods earlier the TD setup is immediately canceled.

An initial starting number '1' is plotted if a candle manages to close lower than the close of a candle 4 periods ago. Consequently, the 2nd number '2' is plotted only if the 2nd candle manages to close lower than the close of the candle four 4 periods ago. The point of reversal comes when the TDS plots the number '9' on the bottom of a candle. In other words, when 9 consecutive candles managed to close lower than the candles of 4 periods earlier. If at any point, a candle closes higher than the candle 4 periods earlier the TD setup is immediately canceled. For the perfect setup, the lows of the 8th and 9th candle must be lower than the lows of the 6th and 7th candle.

If a bullish or bearish trend is completed there is a high probability that the market will reverse in the opposite direction. The number '9' is ideal for entering a trade opposite to the established trend. The stop-loss should be set 10% above or below the highs/lows of the 9th candle. If the pattern plays out, the pullback will be significantly strong during the first 3-4 candles after the confirmation of number '9'. When the 9th candle is confirmed, there is a high probability for a trend reversal. If the Setup is perfect, expect 3-4 strong candles in the opposite direction.

The TDS 9 indicator is applied to iFast in the chart below.

Sequences B, D and E resulted in trend reversals. Set the buy/ sell signals at the next candlestick at the end of the bearish/ bullish trend TD setups. The stop-loss should be 10% above or below the highs/lows of the 9th candle. After you have bought/ sold, use other indicators to determine your selling/ buying prices. Sequences A and C didn't result in trend reversals. So TDS 9 doesn't always work and must be used together with other indicators. It doesn't work in a strong up or down trend.

TDS 9 can be used with MACD as shown in Fig. 2.

Sequences B, D and E resulted in trend reversals as there were MACD crossovers a few days after the end of the sequences. This is because MACD is a lagging indicator. Sequences A and C failed because there wasn't any MACD crossover. Hence, the TDS 9 works best in an oscillating and weak bull/ bear market. It should be used with other technical indicators such as MACD for more reliable results.