That is the count of the number of days for which it has been true that the price is higher than the price four days ago.
Sort-of.
Instead of going to 10, it wraps-around to 1. Note that: 1, not even zero. No candles are zero candles. Nor tens.
Which means every candle is labelled with 1 of 9 possible digits.
The people who believe in the TD Sequential method would have you believe that the price is more likely to turn around if it's a 9 than any other number. They generally seem to count 8s and 1s as close.
You know, plus or minus one. Give or take. On the balance of probabilities. Maybe. If the moon is right and the stars align.
If the labels were instead just assigned randomly, then tops would happen on a bar which was randomly labelled "9" about one out of every nine times. One in three, give or take. If the stars align.
The TD people think you will then have a few days of pull back.
But....
I really do think that they are right on this occasion at least.
We are indeed way over-extended, there hasn't been a down-week in ages.
As a measure of it going up too much and so it should surely go down for a bit, yeah!
My main problem with the method is the wrap-around and the lack of a zero.
I like it as a measure of how extended price is: The number of days in which the price is higher/lower than the price a week ago.
But when you modulate your count by 9 you make it into a basically 1/3 random number thing.
Still. They'll be right anyway. If you are a swing trader, (I am not), short for a day or two I guess?
Also on that picture you will see that the bottom was at a red 9.
Sort of. If 2 candles later counts.
Which it will if you are a price horrocopist.
And honestly, even though it's horroscope bullshit, it would have turned your short into a long at about the right time.
[Nobody mention the time it turned around on a 5ish like you'd expect it to do about half the time also]
