Range Expansion Index (REI)

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.