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Range Expansion Index by Tom DeMark Setup
Location: With the Trend
developed this indicator. He
discussed it in his book, "New Science of Technical Analysis," and published
articles in various trading journals. He has described the workings of the
formula and how to trade it. Capital
West Investment has an excellent reprint of one on their website.
I believe the REI to be so fine, it is one of the few indicators I would
pay extra to a software company to have available for use.
The indicator has a buy zone, a sell zone and a neutral
zone. There are two entries that
Mr. DeMark presents. I have a third
one that I use. We shall discuss
one of his, which I shall call "Market-On-Bar-Close" and my entry, which I
call the "Buy/Sell Stop Method."
We want to take a trade in the direction of the Moving
Average (30WMA). While prices are
moving in the direction of the MA, they will begin to retrace in the opposite
direction and the REI will follow suit. First,
the indicator enters the zone in the direction of the move and we are preparing
to put on the trade.
(MOBC) - there are two conditions to be met, requiring 4 completed price bars:
The close of the just completed price bar is in the
direction of the MA compared to the close of the previous price bar (called bar
# 1). We enter at the "market"
if the next condition has been met.
In the case of a buy set up, the low of the bar # 2
(preceding bar # 1) is below the low of bar # 3 (preceding bar # 2).
Unlike Mr. DeMark, I personally do not require bar # 2 and bar # 3 to
have occurred in, what I call, the "zone of opportunity."
Buy/Sell Stop Method
- is very straightforward and could involve any number of price bars but
usually less than 5.
Place a Stop (or Stop Limit) Order upon completion of the
first completed price bar after the indicator has entered the zone for entering
the trade in the direction of the Moving Average.
Move the Order to the next completed price bar until the stop is hit and
we are in the trade. The initial stop loss is the opposite end of the entry bar
or last completed bar.