The range expansion index by Tom DeMark is designed to identify price exhaustion which may be the end of a move up or down.
The calculation is somewhat similar to an RSI (see Relative Strength Index) but looks at 2-day changes in the daily high and daily low values and smooths with a 5-day SMA (see Simple Moving Average). Changes are ignored if the current day in not either within or covering price action from 5 or 6 days ago. That test effectively holds the indicator around zero while prices are making breakaway runs.
DeMark regarded values above +45 or below -45 as overbought or oversold. Such a reading maintained for up to five days suggests a reversal, except that if it remains there for 6 or more days then the signal may be unreliable and trading should be avoided.
Copyright 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2014, 2015, 2016, 2017 Kevin Ryde
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