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REI Additional Note

     A period of five or fewer days in the overbought / oversold zone constitutes a mild reading regardless of the extremity of the reading: a period of more than five days translates into a severe indication.
     Specifically, markets reverse when modest or mild overbought / oversold readings are recorded: whenever extreme readings are registered a "recycling" process must occur. The indicator must move into a neutral zone and then record a second mild (rather than severe) indicator reading to signal a reversal.
     This dichotomy of severe vs. mild readings is consistent with divergence analysis and explains why this technique sometimes seems to work: The initial thrust into overbought / oversold territory is generally severe (more than five days), and is followed by a move into the neutral zone and a subsequent milder overbought / oversold reading.
     Concurrently momentum often propels price above or below its previous extreme, and a divergence occurs. When a mild reading is about to move into a neutral position a price reversal generally takes place.

Through research and experience I have defined an overbought / oversold band of +45 to -45 for the five day REI that helps identify impending price changes.
     If the indicator remains above or below these levels for more than five consecutive days (a severe or extreme reading), postpone any trading activity until the indicator has "recycled" by re-entering the neutral area between +45 and -45. If it remains above or below the extreme levels five days or less (a mild reading), prepare for at least a short-term price reversal.

      Qualifiers A simple and conservative method to confirm a price trend change is to wait for the indicator to penetrate either the upper or lower indicator band and exit that zone within a period of five days.
     A more aggressive approach is to identify the first daily close greater than the previous day's close that is in turn preceded one day before by a price low less than the price low two days earlier, coincident or after an indicator reading below -45: or conversely, the first daily price close less than the previous day's price close, which is in turn preceded one day before by a price high greater than the price high two days earlier coincident or after an indicator reading >  +45.
     However, this approach does present the user with an element of risk; if the indicator remains either below -45 or above +45 for more than five days, then prudence dictates you should exit the position. Because the first qualifier technique above is straightforward, I will concentrate on the second complicated approach.
The overbought and oversold zones are highlighted in "Timing market turns" . The first subsequent up and down closes are identified with arrows, provided that day is preceded by a price low lower than the previous day's price low (at a bottom) or price high greater than the previous day's price high (at the top). In the two instances in which the REI oscillator remained in overbought territory for more than five days, a failsafe exit appears.

These approaches are objective, mechanical and confront the nemeses of other commonly used indicators - namely, exponential distortions caused by random extraneous events, the subjectivity of divergence analysis, the preoccupation with closing prices, the inclusion of irrelevant price activity, and the inability to present a formal, mechanistic analytical approach to identify high- and low-risk entry points. Through research and experience I have defined an overbought / oversold band of +45 to -45 for the five day REI that helps identify impending price changes.
     If the indicator remains above or below these levels for more than five consecutive days (a severe or extreme reading), postpone any trading activity until the indicator has "recycled" by re-entering the neutral area between +45 and -45. If it remains above or below the extreme levels five days or less (a mild reading), prepare for at least a short-term price reversal.

     Explanation provided by Capital West Investment Group, Inc.

Remember that personally, I trade primarily with the direction of the moving average (MA).  This is my first and most important indicator.  I use the 30 period weighted moving average, “30WMA”.  So I look for sell signals when the MA is pointed down

(Fig. 10), buy signals when the MA is pointed up (Fig.  10).  When the MA is basically flat, then the REI signals are oftentimes questionable (Fig. 11).  When the MA is flat for an extended time, buy and sell signals can be valid and make for very profitable scalping for the seasoned trader.  Choice of Time Frame (TF) is critical