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Chapter 12, Part VI. Detrended Oscillator and Momentum Indicator. Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 20, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Chart #3 | EUR/USD weekly DOSC(7)
    [​IMG]

    Results you can evaluate by yourself…

    Pipruit: This is tremendous results, especially if we take into consideration really strong upward trend. Every time, when DOSC shows overbought level – when it reaches the upper border at 493 points, the market shows some pause in move or retracement, till DOSC corrects lower. The same is true for oversold. DOSC catches every peak in uptrend! This is really outstanding.​

    Commander in Pips: I’m glad that you like it.

    Pipruit: And how we can apply it? Sell at overbought and buy at oversold?​

    Commander in Pips: Not quite. DOSC is a fine tuning tool and demands more delicate uses. You can’t just buy or sell due DOSC because it doesn’t show trend! This will be a mistake if you’ll do this. You should use it as additional tool in your overall trading context. Here is how it could be done.

    DOSC APPLICATION

    Overbought/oversold estimation

    1. When DOSC reaches 75-100% of oversold/overbought level, i.e. its extremes – close position. Let’s suppose that you hold Long position. After some time market shows significant thrust up and DOSC hits 90% from it extreme high. It’s time to take profit;

    2. Level of oversold/overbought should be estimated on daily or higher time frames. This is just safer. You can apply DOSC on intraday charts also, but there is has a tendency to change extremes much more often;

    3. If, for instance you trade on intraday charts, and daily DOSC is close to extreme - then you should apply the nearest intraday profit targets. It could be intraday 0.618 Fib extensions or previous highs – they hardly will be taken out due to daily overbought condition. The same is true for oversold.

    4. If market reached Oversold or Overbought and does not bounce – stays with it or continues to creep higher/lower, then it tells us that the market is very strong in that direction and this move should continue. Forex is financial market and financials very rare stand at overbought/oversold levels for a long time.

    5. Higher time frames overrule lower time frames. Assume that market is oversold on weekly time frame. In this case it could lead to significant break of daily overbought level, so daily DOSC could establish new highs during an upside retracement on the weekly time frame.
     
    Hamza Samiullah and fran alvarez like this.
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