Thursday, March 12, 2009

Sequences Of Tom Demark

Tom Demark - President of «Market Studies Inc.», A supplier of software for most of the major market participants, it is also a consultant to major foundations and the author of the book «The new science of technical analysis and the methods of calculating the time the market: innovative studies of market rate and price exhaustion» published by «John Wiley & Sons». The sequence of TD is a registered trademark.

Originally developed for the analysis of daily schedules, the method of «TH sequence» is also working on intra-day charts. This method is especially effective for determining the entry points to the low and high risk.
Tom Demark

When I came into the investment business for over 25 years ago, the New York Stock Exchange was approximately 6 million shares a day. Stock Quotes appearing on the tape «ticker», and futures quotes had been on the big wall board.

I've done their market research, examine the printed weekly schedules using a magnifying glass. The analysis was limited to findings on the daily price activity, because the intra-day price data were not available until the 1980's. As soon as it became available, I was pleasantly surprised to see that the sequence of TD has also worked at the intra-day price movements.

My study showed that the majority of market price movement shows the natural rhythmical movements which can be measured by a combination of factors, such as comparing price levels with the closure of the extreme price maximums and minimums. Simply put, the method of «TH sequence» is composed of three distinct stages: model, intersection and countdown.

Model

The initial stage of the model consists of a series of at least nine consecutive closures in less than four previous closing price bars for the models to buy and at least nine consecutive covers more than four previous closing price bars for the model on sale. The model identifies the market conditions or «market context» and determines whether the trader should look for points to buy or to sell at this market study.
I have added addition to the well-known phrase «Trend - your friend». It sounds so - «trend is your friend, unless the trend is not coming to an end». In this case, would not be prudent to trade on the trend. Most of my methods of timing the market, like the sequence of TH, are to expect Facing trend.

Intersection

Once the series has been defined for the model, I see the price activity, beginning at 8 day model to determine whether the formation of the model improved, and whether the clock starts ticking. To achieve this, it requires phase, which I call the intersection.

Crossing requires that a maximum of 8 bar model for the purchase was greater than or equal to a minimum of bars 5, 4, 3, 2 or 1 in this model. If this requirement is not reached, the maximum of 9 bar model for the purchase must be greater than or equal to the minimum bar 6 of this model or any other price bar that is included with this model. If this condition is not fulfilled, then each subsequent price bar is compared, while his best not to be greater than or equal to the minimum price the bar three or more price bars earlier model for purchase.

To the crossing occurred in the model for sale, minimum price bar 8, 9 or the first subsequent bar must be less than or equal to the high bar, three or more price bars earlier model for sale.

The intersection is a necessary step, because it confirms that the degree of reduction or increasing rather slow to enter the final stage, which is a countdown.

Countdown

The countdown sequence TD for the purchase consists of a series of 13 successive closures of less than or equal to a minimum of two price bars earlier. Once this was achieved, the market in the general case is in the shopping area with a low-risk entry. The countdown sequence TD for sale consists of a series of 13 successive closures of greater than or equal to a maximum of two price bars earlier. This is generally the case points to the area of sales of low-risk.
Taking into account that the model requires that the price comparisons were consistently supported countdown does not apply such restrictions. To avoid buying at the highest level at the entrance to the countdown 13 bars and sell at a low level, with the countdown 13 bars, I set the requirement that 13 of the bar is running for the purchase was postponed until it occurs below 8 bars of a reference to purchase and, conversely, that 13 of the bar is running for the sale was postponed until it is formed above 8 bars of a reference to the sale. «Circulation» - an issue that may arise in the markets, developing a strong trend. Generally speaking, if subsequent to the completion of a model is running, it must begin a new process is running.

The sequence of TD in Action

TH sequence is universal for different time scales. March schedule futures Index S & P 500 (Chart number 1) shows that the price level declined from approximately 800 to 773 - is almost 27-punktnoe drop of 1 1 / 2 hours.

Figure 1

To demonstrate the sensitivity of the method of «sequence TD» to accurately determine the maximum and minimum at the minute the schedule, I applied this technique to the temporary layout. Relevant countdown 13 for sale and countdown for the purchase of 13 are not input levels, but rather that they accurately determine the levels of inputs with low risk. Figure 1 shows how they were formed and the base peak of the market.

Figure 2

Figure 2 and Figure 3 increases the period of the model for the sale and purchase, to illustrate the ease of computation of the pricing models and is running. Please note that, in the case of the market improving, I set the number and model, and is running above the price bars, and vice versa, in the case of market decline, the number of sets below the price of the bars.

Figure 3

In addition, figure 1 it is obvious overlap with the end of the ninth bar model for sale (a series of nine or more consecutive covers more than the closure of four price bars earlier), the price tends to recover. A similar phenomenon occurs in 13:45, which is registered the ninth price bar patterns for sale.

Models for the purchase to demonstrate this behavior just the opposite. At approximately 13:15 the ninth price bar patterns for the purchase of (a series of nine or more consecutive closures smaller than the closure of four bars earlier) was recorded, and the price subsequently increased significantly. A similar case occurred at 14:10.

However, each model shows a similar result as you can see at 14:35, when the ninth bar model for the purchase was not in a position to lead to any upward price movement.

To demonstrate the application of TD-sequences in other markets and time periods I cite the five-schedule the May coffee futures, which indicates the completion of a reference sequence for the TD with a high risk of buying just before the morning price GEPom February 20, before more than 10-punktnym increases. (figure 4)
Also at 10-minute schedule of the March futures Index S & P 500, I determine sequence TD shows a purchase with a high risk at 19 February, which coincides with the peak price. (figure 4)

Figure 4

Although the method of «sequence TD» worked effectively full-time schedules for more than two decades, only during the past five years, it became apparent that this technique can also be applied to intra-day price chart. Because this technique was originally intended to apply to the longer time periods, its ability to provide high-and low-risk zones of the entrance to the intra-day charts is proof of its ability to adapt.



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