Thousands of technical indicators are used by traders all over the world to try to forecast the direction of Bitcoin’s trend and profit from it. While most of these indexes are easily accessible to the public, there is one, in particular, that is widely used by institutional investors. Here, we demonstrate how retail traders can use it to their advantage.
The Tom Demark (TD) Sequential indicator is often described as one of the most efficient gauges since it can be easily adapted to any trading strategy. This index serves the purpose of identifying local tops and bottoms as it signals when an uptrend or a downtrend is about to reach an exhaustion point and reverse.
Over the years, the TD setup has proven to be essential in determining Bitcoin’s price action. In 2020, for instance, it was able to predict one of the most significant corrections that the flagship cryptocurrency has seen thus far.
In mid-February when Bitcoin surged to a yearly high of $10,500, the TD Sequential presented a sell signal in the form of a green nine candlestick. Following the bearish formation, BTC went through a massive bearish impulse that saw its price plummet by nearly 63%.
Then, it was also able to accurately estimate that BTC was reaching an oversold territory on March 16. After providing a buy signal in the form of a red nine candlestick that transitioned into a green one, the price of Bitcoin recovered over 56% of the losses incurred.
The high level of precision that this technical index has to determine where Bitcoin is headed next, makes it ideal for any trader to consider it before entering any long or short positions. For this reason, we will explore some of the most simple and effective rules of the TD Sequential to help you time the price action of the bellwether cryptocurrency.
When to Buy and When to Sell?
The TD setup usually presents different buy and sell signals that are correlated with Bitcoin’s price action. These vary between aggressive, combo, and sequential 13 candlesticks as well as others. But for now, we will direct our focus towards the most significant bullish and bearish formation that will boost your trading strategy.
The most important buy and sell signals start with the completion of a nine candlesticks count. When a nine candlesticks countdown is completed, it is at that point that the TD Sequential indicates that a pullback or trend reversal is about to take place. This can happen in an upward or downward direction.
When it occurs to the upside, the bearish formation develops in the form of a green nine candlestick that forecasts a one to four candlesticks correction or the beginning of a new downward countdown. Conversely, when the nine candlesticks count happens in a downward trend, the buy signal develops in the form of a red nine candlestick estimating that a bullish impulse is underway.
It is worth noting that green nine and red nine candlesticks can transition into red or green one candlesticks, respectively, depending on Bitcoin’s price action. But this does not invalidate the forecast of each signal.
A look at BTC’s 1-day chart shows how the formation of green and red nine candlesticks has provided several opportunities to profit since mid-December. Traders who rigorously followed these signals since then would have made at least 180% in profits. Meanwhile, those who bought Bitcoin around December 16, 2019, would have 47% returns.
Another important rule to have in mind when using the TD Sequential indicator is that a green two candlestick trading above a preceding green one candle can have the potential to invalidate a sell signal. The same goes when a red nine candlestick develops and there is a red two candlestick trading below the preceding red one candle.
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If you’re still waiting for the chance to get onto the DFE mainnet, then why not test out the TD Sequential indicator on the Digitex testnet platform? It’s free to sign up and doing so means you’re automatically queued for a mainnet account. We’re onboarding more and more traders every week, turning the DFE into one of the most liquid exchanges on the market.