What is the Relative Measured Extension indicator? #
The Deepvue Relative Measured Extension indicator is a helpful took that you can use to determine relative levels of extensions above or below a moving average.
It plots a line on a scale of -100 to positive 100 that indicates how “extended” a stock is from the moving average based on previous trading history.
It is useful for both position management, as an indicator that the stock be needing to base or pullback, and for analysis of when a base or pullback may have reached an extreme to the downside.
Interpreting the value of RME #
Always remember that this indicator oscillates between -100 and 100.
A value of 100 indicates that at that moment in time, the stock is as far above the moving average as it ever has been in the lookback period.
A value of -100 indicates that at that moment in time, the stock is as far below the moving average as it ever has been in the lookback period.
It is calculated by training the data on the previous extensions from the moving average and then comparing the current extension level to those past data points.
We have plotted Overbought and Oversold red zones at 70 to 100 and -70. to -100 which you can adjust to suit your preferences and serve as a visual indicator of extremes.
When you identify an extreme you should always look back in time to compare it to previous extremes and situations to interpret the indicator in the full context of the chart.
For instance, extensions early in a trend can be considered a positive and a sign of strength although a stock may need a pullback while later in a trend it can be considered a negative and an indication that the current trend may be on its last legs.
Recommended Configurations #
For position traders, the standard of a lookback period of 250 bars and a moving average of the 50sma is recommended.
This will help you spot significant changes in extension form the MA as a stock accelerates up, and it will also help you interpret bases and when the stock may start to move up the right side.
You can use this for individual stocks as well as for index etfs like the QQQ to identify potential bottoms of corrections
For Swing Traders, we recommend either a lookback period of 100 bars and a moving average of 20 or a lookback period of 50 bars and a moving average of 10.
Using a shorter lookback period and moving average will give you faster signals of extensions.
Here is RKLB a fast trading stock with a Lookback period of 100 and a moving average of 20
Notice how it catches important turning points in the stock
Here is MSTR with a lookback period of 50 and a moving average of 10
Notice how the signal is a bit more responsive.
For strong stocks in powerful moves, they may stay higher near the overbought zones and pullbacks in RME to the 0 level can be excellent spots to look for reversals back up.
You can adjust the lookback period, moving average, and styling by hovering over the indicator name and clicking the settings icon.
Go to the style tab to adjust further settings to your liking
