Reversal Trading
Using DeMark’s TD Sequential
PERFECTED COUNTDOWNS
“Perfected”
Buy Countdown — Low of Bar 13 must be less than close of bar 8 to give some assurance that market is really oversold
“Perfected”
Sell Countdown — High of Bar 13 must be
greater than the close of bar 8 to give some assurance that market is
really overbought.
SPECIAL 13th BAR CONDITION FOR TD SEQUENTIAL/COMBO COUNTDOWN
Tom DeMark refers to a “termination count” on the 13th bar only:
For a Buy Countdown, the 13th price bar will fulfill a countdown if
either the Close of the bar is less than the Low from 2 bars earlier,
or the Open is less than the Low from 2 bars earlier
For a Sell Countdown, the 13th price bar will fulfill a countdown if
either the Close of the bar is greater than the High from 2 bars
earlier, or the Open is greater than the High from 2 bars earlier
In both cases, I’ll still require a perfected Buy or Sell countdown
Here are a couple very good primers on TD Sequential/Combo:
Download td_sequential_article_1.pdf
Download td_sequential_article_2.pdf
In Tom DeMark’s book Day Trading Options, he covers some
ideas for entering a trade based on a TD Sequential or TD Combo 13
Signal.
Reverse anything shown below for a Buy.
1. For a Sell, the close of the 13th bar should be above the close of 4
days earlier. You could have a 13 hit, but the stock could already be
into a deep downtrend.
2. Watch the price bar following the 13 for a close below the open. This probably applies better to shorter term trading.
3. Opens higher than previous bar’s high, then, trades below that high. I think this is basically the Williams Oops! trade.
4. DeMark also talks somewhere about looking for a low less than
the previous day’s low, or a close below the previous day’s low.
5. I’ve also mentioned that some traders like to go in on
thirds — 1/3 on the 13, another 1/3 on the bar following the 13, and
another 1/3 on the next bar. I don’t like this idea very much at all
because it leads to knife catching/averaging down, and it is not
recommended by me to anyone.
6. The idea of the above is that these signals can have a window of 2-3 bars to work.
Finally, remember that failed signals can be important because they
often show extreme momentum, possibly a market headed to a new higher
(or lower) range.
