Overbought and Oversold

Discussion in 'Trading systems and market analyzing methods' started by ibm'73, Nov 6, 2017.

  1. ibm'73

    ibm'73 Active Member

    Overbought and Oversold

    OB (Overbought) and OS (Oversold) is a condition where the price can no longer continue the trend because it is too expensive or too cheap price so that the trend can no longer be continued. In contrast to support and resistance which is a psychological level which is basically just an unofficial collective agreement among traders, OB and OS itself is a common and real situation happening in the market (not just psychological matters).

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    In the event that the price reaches its OB or OS point it is expected that the price will reverse direction and the trend will stop soon. So as it moves up and the OB point has been reached, then the price will come back, the ascending trend will stop and then be replaced with the move down the currency. Vice versa when the price moves down and then enter the OS area then the price will move back up and down trend also stopped.

    OB and OS often occur in Support and Resistance points, this is because both are the same point that is the trend counter. But not always. Of course the buy and sell decision will be very supportive if the price is not at these extreme points.
    Now the question is how to determine this OB and OS point? The easiest way is to use an Oscillator type indicator such as RSI or Stochastic. These indicators are designed to determine the OB and OS spots.

    With regard to these indicators we can estimate when a trend ends and is replaced with the next trend. Thus we can set the timing of position opening for the better.
     
    Nia likes this.
  2. Nia

    Nia Member

    articles that are very interesting and easy to digest for a beginner trader like me.
     
  3. ibm'73

    ibm'73 Active Member

    thank goodness that this article gives a lot of feedback for you before you make a transaction
     
    Nia likes this.
  4. andengireng

    andengireng Member

    Ngejunk doang..
     
  5. andengireng

    andengireng Member

    Prices in the market do not always move up and down continuously. At a certain level the price has gone up or down too far will have a retracement or correction, before continuing the movement of trend direction or reverse direction. Prices that rise and reach a certain level will experience overbought or overbought conditions, and prices falling to some extent will experience oversold or oversold conditions. In overbought or oversold conditions the possibility that will happen is a correction, or reversal. Both possibilities can be confirmed with the oscillator indicator, which is a popular indicator of Relative Strength Index (RSI). If confirmed correctly, overbought or oversold is a good trading opportunity.
     
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    KathyBiz Member

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