The indicator is built on the basis of the formed short-term price highs or lows, provided that recent days generated lower highs or higher lows as compared to the daily price levels.
In his book Long-Term Secrets to Short-Term Trading, Larry Williams provides the following description of the market extremes: "I can define a short-term market low with this simple formula: Any time there is a daily low with higher lows on both sides of it, that low will be a short-term low. A short-term market high is just the opposite. Here we will see a high with lower highs on both sides of it."
The described feature of the price extreme makes it possible to identify short-term price reversals on a daily chart and, if there is a signal, place a trade in the direction of the reversal.
The MetaTrader indicator Larry Williams' Extremes developed by InstaForex enables you to clearly define the moment when a particular financial asset forms a short-term price high or low (from the point of view of the concept's author). In case there is a price extreme (high) on a currency pair's daily chart, the indicator will display a red arrow meaning that the formed pattern might be followed by a price decline. Conversely, if the price generates a short-term low, the indicator will show a green arrow confirming the buying possibility.
If you use this indicator as an independent tool of analysis, you should allow for the direction of emerging trends in order to exclude the possibility of entering the market against the general direction of the price movement.
The signals of the Larry Williams' Extremes indicator as an additional analysis instrument complement the basic technical or fundamental method of decision-making of the trading system.