Tom demark sequential

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Most traders are trend followers. They accept the widespread belief that the trend is a trader’s friend. Many years of exhaustive research and trading experience have convinced us that this notion is flawed. For the sake of completeness, we have added a corollary to this premise—the trend is your friend, unless the trend is about to end.

Human nature is such that we are inclined to extrapolate current events into the future. Some expectations have outcomes that are immutable and universally applicable: The sun rises in the morning and sets in the evening. Cut your hand with a knife and you will bleed. Fall from an elevated level and gravity will pull you down. There are no exceptions. Other expectations may be disappointed: Flip a light switch and a dark room becomes bright—but what happens if the electricity is not in service?


Similarly, in terms of trading markets, as long as buying pressure is greater than selling pressure, a market’s trend is up, and, conversely, as long as selling pressure is greater than buying pressure, a market’s trend is down. To expect that buying pressure will continue to exceed selling pressure and extend an uptrend indefinitely or that selling pressure will continue to exceed buying pressure and extend a downtrend indefinitely is foolhardy. No market trend continues forever, just as no tree grows to the sky. Market dynamics are not dictated by the forces that govern human nature. Most traders are content to trade comfortably and with a trend, but what happens when buying and selling pressure move into equilibrium or when buying pressure overcomes selling pressure or when selling pressure overcomes buying pressure? During these transition periods of buying and selling pressure, market fundamentals, news, and expectations usually remain intact. However, under this veneer, the supply/demand dynamics are in fact being redefined. Maintaining a trading edge by anticipating these internal market changes is imperative to ensuring a trader’s good mental and financial health.

Source: Breakthroughs in Technical Analysis: New Thinking from the World's Top Minds, by David Keller.

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Tom demark sequential