Stock Diamond - Technical Analysis Education

The Range Expansion Index is an arithmetically calculated market-timing oscillator designed to overcome problems with exponentially calculated oscillators.

Overview

Developed by Tom DeMark, this is a more precise indicator of trends and trading signals than exponential oscillators, such as MACD.

• REI eliminates short term irregularities by comparing current prices with the prices two days previous
• REI works only in trending periods
• DeMark included conditions to eliminate premature signals

Interpretation

The REI oscillator typically produces values of -100 to +100 with 45 or higher indicating overbought conditions and -45 or lower indicating oversold conditions. DeMark advises against trading in extreme overbought or oversold conditions indicated by six or more bars above or below the +/-45 thresholds.

When conditions aren't met, the day's value is zero.

• REI values range from -100 to + 100
• If the REI is in the overbought or oversold area for less than five consecutive periods, you can expect at least a minor reversal
• The signal is unreliable if it stays above or below these levels for more than five periods. REI must then return to the neutral zone (between +45/-45) before giving a reversal signal outside the zone.

Signals

• Overbought - REI greater than + 45
• Oversold - REI below -45

Trading should be avoided when:

• Overbought for six or more periods above +45
• Oversold for six or more periods below - 45.