The most important aspect of "Perfected" vs "Imperfected" TD Buy & Sell Set Ups is the idea of "exhaustion of current trend". "Perfected TD Set Ups" tend to signal exhuastion more accurately than do "Imperfected TD Set Ups".
In the top screenshot, a "Perfected TD Sell Set Up " is demonstrated on the AAPL chart (despite the weekly candle 8 being higher than the sell signal of candle 9).
The rules for "Perfected TD Set Ups" include the following:
- HIGH of candle 8 OR 9 must be greater than BOTH of the HIGHS of candles 6 and 7 for "Perfected TD Sell Set Ups" (trend has been up).
- LOW of candle 8 or 9 must be less than BOTH of the LOWS of candles 6 and 7 for "Perfected TD Buy Set Ups" (trend has been down).
In the bottom screenshot, an "Imperfected TD Buy Set Up" is demonstrated on the weekly AAPL chart (neither candle 8 nor candle 9 went lower than the LOW set by candle 7 in late January). This imperfection is highlighted by the black Xs by our indicator (black Xs stop printing once price "perfects" the Set Up).
As you can see, even though the completed "TD Buy Set Up" (highlighted by the black arrow on candle 9 by our indicator) bounced the price for a number of candles (though failed to close above TDST line highlighted by red dots by our indicator), price returned the lows of this TD Buy Set Up a short while later in order to "Perfect" the series....i.e....the downtrend wasn't "exhuasted" despite a TD Buy Set Up showing up as completed.
Now there are many interesting trading strategies that can be built around the patterns of these perfected vs. imperfected TD Set Ups (and we'll likely cover some we've seen in coming blog posts) but the KEY Takeaway is the idea of being wary as a trader of the Tom Demark Sequential Indicator that sometimes imperfected TD Set Ups are less likely to signal exhuastion and reverse the current trend. Yes, perfected TD Set Ups can also fail to signal trend exhuastion BUT they are significantly more accurate in doing so than are imperfected TD Set Ups.
Check out our indicators section of our website if you'd like a script that highlights these imperfections in TD Set Ups as price action unfolds. (black Xs in 2nd screenshot...dissapear once Set Up gets "perfected").