An indicator designed to identify market exhaustion using price patterns. It can help to anticipate trend reversals.

Overview

  • Developed and trade marked by Tom DeMark, this indicator helps identify market exhaustion (based on the premise that price reversals are the result of market exhaustion).

Interpretation

Sequential Analysis involves a three step process of counting the daily bars on a bar chart:

Set Up:
  • Buy set up: count nine consecutive daily price closes which are lower than the close four days earlier.
  • Sell set up: count nine consecutive daily price closes which are higher than the close four days earlier.



Requisite filter (Intersection):
This step is designed to filter-out false expectations of a reversal when the trend is strong.
  • To confirm a buy set up the highs of day 8 or 9 must intersect the lows of three or four days previous.
  • To confirm a sell set up the lows of day 8 or 9 must intersect the highs of three or four days previous.

Countdown:
  • A buy set up is 13 closes lower than or equal to the close 2 periods earlier (unlikely that these will be consecutive)
  • A sell set up is 13 closes higher than or equal to the close 2 periods earlier (unlikely to be consecutive).

Signals

Only after the entire three-step process has unfolded, would you enter the market.

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