Overbought or Oversold

3BlackCrows

Corporal
Messages
83
Hi CPartners,

The most commonly used are RSI or Stochastics but they are not always a good indication of those levels.

They will both tend to top crawl (for overbought) or bottom crawl (for oversold)

Anything 80 and above is considered overbought and 20 or below oversold. In saying that you need a pretty good signal to back those indicators up.

A better way to use them (especially RSI) is to get in on continuation of trends.

On higher timeframes such as the Daily chart, anything aove 50 is considered an uptrend and below 50 a downtrend. You will need to asses what the established trend is to confirm this (sideways motion or channelling means nothing)

Often you will see RSI bouncing off the 50 level on the daily chart as it retraces then continues on in the direction of the trend.

Once you know the trend you can use RSI on the lower timeframes such as 4Hr, 1Hr and right down to 15Min to pinpoint an entry.

Wait until levels overbought (for a downtrend) or oversold (for an uptrend), look for a signal on pivot levels, support and resistance levels, trendline bounces, MACD Convergence/Divergence or MACD looking to bounce off the 0 line then jump in the trade in the direction of the trend.

One thing I might add is that once I got rid of all my indicators except 2, my trading success increased greatly.

The problem with too many indicators is that more often than no they will show you conflicting signals - one will show a short and one will show a long trade on the currency.

This will only confuse you more as you wont know which way to go.

I still keep an eye on RSI occasionally but it's not permenantly a part of my chart setup.

Hope this helps - Happy Trading! :)
 

Cyclon

Company Representative
Messages
300
Another to check

Try this one out:
Williams%R Set it to 89 will work at 0 and 100 and can of course only be counted on for major reversals at the correct timeframe to match trend on a pullback. Try 356 and 466 ema pairs for that. 356 can at times be a bounce and at others just passing thru to a violation at a zone beyond the 466. So wisdom is using observation and experience and all the stuff already mentioned about indicators.
 

bigdolly

2nd Lieutenant
Messages
1,050
Which is the best indicator to determine oversold and overbought levels.
RSI. Basically you expect that momentum will eventually cause a bounce in opposite direction. RSI is the best tool to grab such opportunities.
 

fxoday

Recruit
Messages
362
There are some indicator work as oscillator indicator, stochastic, RSI, Willliam r etc,
but need to combine with price action as signal trading
 

Dutchy86

Recruit
Messages
58
I use others but probably the one I follow most like others would be the rsi as usually gives a clearer picture on the bigger timeframes
 

carnelian

Private
Messages
207
If you are looking for indicators to tell you overbought or oversold things, you will get rekt when a strong trend starts. It is always better to look at supply and demand zones so you can take better entries.
 

Charlieboy885

Recruit
Messages
9
Hi CPartners,

The most commonly used are RSI or Stochastics but they are not always a good indication of those levels.

They will both tend to top crawl (for overbought) or bottom crawl (for oversold)

Anything 80 and above is considered overbought and 20 or below oversold. In saying that you need a pretty good signal to back those indicators up.

A better way to use them (especially RSI) is to get in on continuation of trends.

On higher timeframes such as the Daily chart, anything aove 50 is considered an uptrend and below 50 a downtrend. You will need to asses what the established trend is to confirm this (sideways motion or channelling means nothing)

Often you will see RSI bouncing off the 50 level on the daily chart as it retraces then continues on in the direction of the trend.

Once you know the trend you can use RSI on the lower timeframes such as 4Hr, 1Hr and right down to 15Min to pinpoint an entry.

Wait until levels overbought (for a downtrend) or oversold (for an uptrend), look for a signal on pivot levels, support and resistance levels, trendline bounces, MACD Convergence/Divergence or MACD looking to bounce off the 0 line then jump in the trade in the direction of the trend.

One thing I might add is that once I got rid of all my indicators except 2, my trading success increased greatly.

The problem with too many indicators is that more often than no they will show you conflicting signals - one will show a short and one will show a long trade on the currency.

This will only confuse you more as you wont know which way to go.

I still keep an eye on RSI occasionally but it's not permenantly a part of my chart setup.

Hope this helps - Happy Trading! :)
Great info, thanks. These explanations are great for the newer traders like myself.
 
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