Introduction to the Rex Indicator
Traders often use momentum-based oscillators to identify potential momentum reversals. However, most oscillators do not provide a clear basis for traders to identify a reversal.
The Rex Indicator is a tool which provides clear and objective momentum reversal signals using oscillators.
What is the Rex Indicator?
The Rex Indicator is a momentum following technical indicator which presents momentum indications as an oscillator type of indicator.
This indicator plots two lines. One line is called the Rex Line, which is the jagged line which mimics the movements of price action. The second line is a Signal Line paired with the Rex Line and has a rather smoother characteristic much like a moving average line.
How the Rex Indicator Works?
The Rex Indicator has a complex algorithm which it uses to plot the Rex Line. It does however have some similarities with how a Relative Strength Index (RSI) line is plotted, although they are not exactly the same.
The Signal Line however is just a moving average to the Rex Line. The method used for computing the Signal Line can be changed to various moving average types.
How to use the Rex Indicator for MT5
This indicator has just four settings options which traders can tweak to adjust the sensitivity of the indicator.
“Rex period” refers to the number of periods the indicator uses to compute for the Rex Line.
“Rex Method” on the other hand refers to the computation method used by the indicator to plot the Rex Line.
“Signal period” refers to the number of periods used to compute for the Signal Line.
“Signal method” refers to the moving average type used to compute for the Signal Line.
There are several ways to use this indicator.
Traders can use the Rex Line and Signal Line to identify momentum direction. A Rex Line above the Signal Line would indicate a bullish momentum, while the inverse stacking of the two lines would indicate a bearish momentum. As such, crossovers between the Rex Line and the Signal Line can also be considered as a momentum reversal signal.
Traders can also use the crossing over of the Rex Line above or below zero as an additional trend or momentum reversal indication.
Since the indicator is also an oscillator, traders can also use this as a basis for identifying divergences.
Buy Trade Setup
When to Enter?
Identify an uptrend market. Wait for price action to pullback significantly. Open a buy order on the confluence of a bullish divergence and the crossing of the Rex Line above the Signal Line. Set the stop loss below the entry candle.
When to Exit?
Close the trade as soon as the Rex Line starts to cross below the Signal Line.
Sell Trade Setup
When to Enter?
Identify a downtrend market. Wait for price action to pullback significantly. Open a sell order on the confluence of a bearish divergence and the crossing of the Rex Line below the Signal Line. Set the stop loss above the entry candle.
When to Exit?
Close the trade as soon as the Rex Line starts to cross above the Signal Line.
Conclusion
The Rex Indicator is a very versatile technical indicator. It is very responsive to price movements thus its jagged features, but this characteristic also makes the indicator susceptible to false momentum reversal signals from time to time. As such, this indicator should not be used as a standalone trade signal but should be used in confluence with other technical analysis indications.
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