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The Chart Pattern Trader
Ron Walker
Ron Walker
Trend Timing Signal
Has Had Over 100 FollowersHas Been a Top Public ChartList for Over 1 MonthPrevious "Hall of Fame" ChartList Author
  • Rank: 10
  • Followers: 153
  • Votes: 2,372
  • Years Member: 15
  • Last Update: 25 January 2021, 1:33
  • Categories:
    Trend Analysis
    Chart Patterns
    Swing Trading
thechartpatterntrader.com
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The Extreme Point Rule

The directional movement indicator is a powerful tool for spotting shifts in market momentum. A buy signal is given when the positive directional indicator ( DI) crosses above the negative directional indicator (-DI), and conversely, when negative directional indicator crosses above the positive directional indicator a sell signal is generated. When the market is trendless the DI lines crisscross back and forth, which can generate false signals.

Solely following the DI and -DI cross signals by themselves can lead to whipsaws and overtrading. Steven Achelis offers a solution to this problem using the 'extreme point rule' in his marvelous book, Technical Analysis From A To Z. Achelis points to the creator of the directional movement system J. Welles Wilder, and his simple trading rule, to help prevent whipsaws and reduce the number of signals that a trader acts upon.


The extreme point rule requires a trader to mark the extreme price point the day in which the DI and -DI cross. According to Achelis, the extreme point is highest of point of a session when DI crosses above -DI and is the lowest point of the session when -DI crosses above DI. Buy or sell signals are triggered when prices move beyond the extreme point.

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