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Tom Demark, in his book 'Day Trading Options', has developed a market-timing indicator (oscillator), called TD Range Expansion Index (REI), which identifies areas that are risky for buying and selling. A weakness in the security or market price could occur if the value of the TD Range Expansion Index is higher than a defined threshold. Above this value, the indicator prevents investors from buying and selling the stock or the security prematurely.
The TD Range Expansion Index is calculated using the close, low and high prices. It produces an oscillator whose values vary from -100 to +100. When the TD Range Expansion Index falls below -45, which is an oversold area, then rises above -45, this tell us that price is becoming stronger. But, when the TD Range Expansion Index rises above +45, which is an overbought area, and then falls below +45, this tell us that the price is weak or is becoming weaker and in that case, as I said earlier, investors should avoid buying (when the price is advancing), and selling (when the price is declining).
Tom Demark created also several other trading indicators. The DeMark's DeMarker indicator compares the high and low prices with the previous high and low levels to measure the demand for an asset. Tom Demark -TD- Range Projections calculates a trading range for the next bar. DeMark DeMarker Trading Rules is a list of six trading rules that use The DeMark's DeMarker indicator.
Tom Demark is also known for the Tom DeMark's Sequential indicator, used mainly in the Forex market by currency traders, and some drawing tools like the Tom demark Trendlines.
The function is named 'TDREI' and it has no parameters. The TD Range Expansion Index formula is optimized for backtesting and analysis uses. The indicator formula uses 12 backward bars and no forward bars.
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
