Extremum Indicator

The Extremum Indicator is a technical analysis tool which is based on identifying the highest high or the lowest low in a given period, and plotting lines to show these levels. The highest high is often referred to as a resistance level, while the lowest low is referred to as a support level. The Extremum Indicator helps traders identify potential areas of price reversal, and can be used in combination with other technical indicators to confirm trading decisions. The indicator can be applied to different time frames, such as daily, weekly, or monthly charts.

What is the Extremum Indicator?

Extremum Indicator is well-known among active market participants as a trend-following forex trading tool. This indicator not only generates entry indications but also defines the market momentum. This feature assists traders in forecasting the length of the market trend and profit/loss margins while trading in the market. This indicator is appealing to new traders due to its user-friendly features and simple chart demonstrations. Extremum Indicator can be used to trade any forex currency pair in the financial markets.

Setting up the Extremum Indicator
Setting up the Extremum Indicator

Extremum Strategy

The indicator displays trade signals in a separate oscillator window. The indicator value must turn positive to confirm the bullish trend. In this case, the indicator bars will turn purple to aid comprehension. In the opposite direction, the indicator value becomes negative and plots green bars, indicating a short entry and confirmation of the bearish trend. A dual band (red and yellow) surrounds the indicator bars. The band becomes wider as the market trend gains strength. A narrow band indicates that the current trend is weak.

Buy Signal

The following could be your checklist for a buy trade:

  • When the indicator value turns positive.
  • When the indicator bars turn purple.

Once these events occur:

  • You could open a buy position after you confirm your entry with bullish candlestick patterns.
  • You could set your stop loss just below the nearest swing low.
  • You could set your take profit at the nearest resistance zone, or you could exit trade when the indicator bands start to get narrower.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Extremum Indicator Buy Setup
Extremum Indicator Buy Setup

Sell Signal

The following could be your checklist for a sell trade:

  • When the indicator value turns negative.
  • When the indicator bars turn yellow.

Once these events occur:

  • You could open a sell position after you confirm your entry with bearish candlestick patterns.
  • You could set your stop loss just above the nearest swing high.
  • You could set your take profit at the nearest support zone, or you could exit trade when the indicator bands start to get narrower.
  • For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Extremum Indicator Sell Setup
Extremum Indicator Sell Setup

Extremum Pros & Cons

Pros

  • The Extremum Indicator identifies market maximums and minimums. Because extreme overbought and oversold zones are usually highly good entry price levels, this can be quite handy for reversal trading methods.
  • This indicator may assist in forecasting the length of the market trend and profit/loss margins while trading in the market.

Cons

  • The Extremum Indicator may sometimes mistake a trend continuation for a trend reversal, and vice versa.
  • This indicator may require the traders to have knowledge of price action in order to benefit optimally.

Conclusion

Extremum Indicator is worth including in your trading arsenal. A good forex indicator may boost your chances of success. Nonetheless, keep in mind the importance of having realistic expectations. Extremum Indicator, like any other technical analysis tool, is not capable of providing 100% accurate signals. As a result, this forex indicator occasionally generates false signals. Its performance will be highly variable depending on market conditions. You are free to create your own trading system based on it.

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