The Sequential Scan

I often post about scanning for Sequential Buy or Sell signals.  I thought I would share how I do that.

First of all, I do not use the rules laid out by Demark.  I was inspired by them, but over the years I have found that the strict rules do not get me what I need.  I want to find important swing levels to trade against and it does not matter what the exact countdown number is.  My market timing technique uses price, volume, and pattern recognition to pull the trigger and I have found my scan using sequential signals is invaluable in finding excellent trade setups.

During a typical scan, I will choose whether I want to look for completed sequential sell or buy countdowns and then scan the market to see how far the current stock price is from its calculated stop loss point. The smaller the percent difference of the current price and the stop loss, the closer the price is to that important level.  A negative percentage tells me that the price has broken through the stop loss giving me a breakout or breakdown.

Risk Level of CSCO

Take a look at CISCO, which I have traded many times recently.  After the Sequential sell signal was recorded back in late November you can see that the percent risk for a trade was positive.  As the number gets smaller the higher it appears in my scan, alerting me that an important level is being approached.  Currently, price has broken through the stop loss level and you can see that the risk is negative (bottom red line).  Such a method of scanning has the added advantage of making position sizing calculations very quick since I already have a defined stop loss and a measure of how far away the current price is.

All of my scans look for percent risk because it instantly tells me what how close the price is to an important level as well as what side of that level it is.  This is the backbone of my trading and it has served me very well.