Sequential

Sequential is a mechanical trading system developed by Thomas Demark. It consists of several stages:

• Setup;
• Requisite filter (Intersection);
• Countdown;
• Entry into the market;
• Position closing (exit).

Setup

Buy or Sold Setup is considered to be formed if within at least 9 consecutive bars, the closing prices are lower (higher) than the closing prices four bars preceding each bar of this sequence. There must be no less than nine bars in the setup.

Requisite filter (Intersection)

Intersection is designed to filter-out false setups. To confirm a buy (sell) setup the high (low) of bar 8 or 9 must be higher (lower) or at the same level as the low (high) of bars 3,4,5,6 or 7. If there is no intesection on bar 8 or 9, then the countdown stage is delayed untill it happens.

The setup is cancelled in the following cases:

• If "looping" (will be described later) occurs.
• If one of the following closing prices is higher than the highest daily top in the case of the Buy Setup; or less than the lowest daily bottom in the case of the Sell Setup.

Countdown

The countdown begins once the setup intersection has occured (but not earlier than bar 9 for this Setup). For the Sell (Buy) Setup the countdown reveals the correlation between the closing price and the high (low) price two bars before. The closing price should be higher (lower) than the high (low) price two bars before. Once thirteen prices have been fixed (not necessarily sequential) the signal appears.

The countdown stage cannot be completed before twelve bars appear following the setup stage (the ninth bar is supposed to be on the countdown stage), but generally, it takes approximately 15-30 bars.

The countdown and the setup are cancelled in the following cases:

• If another opposite setup has been formed.
• In case of "looping" (if another setup in the same direction is formed).

Enter the market

There are three methods of opening a position:

• At the close of the bar which ended the countdown. This is the most risky method because there is a great chance of "looping".
• Following the flip: in order to buy (sell) the closing price should be higher (lower) than the closing price four bars before.
• Following two-bars flip: in order to buy (sell) the closing price should be higher (lower) than the closing price two bars before.

The third method is a compromise between the first and the second method.

Exit from the market

To determine the Stop Loss levels, Thomas Demark used a range of the day with the lowest (the highest) price over the whole setup period and the Buy (Sell) signal countdown.

There are two methods to define the range:

• The bar's low is subtracted from the bar's high or from the previous bar's close if it is higher. In the case of the Buy (Sell) signal the Stop Loss level is calculated by subtraction (adding) of this value from the bar's low (to the bar's high).
• The second method is more "conservative". The bar for the Stop Loss level is chosen in a similar way. For the Buy position however, the Stop Loss level is calculated by subtracting the difference between the close and the low prices from the bar's low. For the Sell position the Stop Loss level is calculated by adding the high price and the difference between the high and the close.
• It is very important to define levels at which to fix profit in case of flavourable price behaviour. There are two ways to close a position with profit:
• If a new Setup stage has been finished and the price could not reach the highest/lowest price level registered during nearest inactive setup.
• If there is a reversal signal.

Sequential is effective not only on daily charts but Thomas Demark recommended it only for this period.

source : www.alpari.com