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Overbought/Oversold: Which Indicators Do You Use?

Discussion in 'Beginners Bootcamp' started by Forexwatchman, Dec 15, 2010.

  1. f-man

    f-man 4Xangels Representative

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    The Envelope is 100% parallel to the MA, while the Bollinger Bands are sensitive to other factors as well.
    Put them both on the same chart and you will see the difference.

    There were some posts about the direct comparison here:
    http://www.forexpeacearmy.com/forex...0-bollinger-bands-vs-envelopes.html#post27175
     
  2. dkami

    dkami Sergeant

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    I prefer to use TSI(true strength index) than the RSI I also use the TSI instead of the MACD(although they give a similar signal) the TSI is known as a "double smoothed" moving average this is why i like it over other indicator's
     
  3. ITtrader

    ITtrader intellitraders representative

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    I like the info. Currently I trade the Forex Majors. I use basic trendlines and many chart setups like the IT Cross, Flags, and Double Tops just to name a few. It is proved fairly profitable for me but always looking to gain more.
     
  4. Anita V

    Anita V Private

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    This is a very helpful post. I have yet to decide which oscillator or in this case overbought/oversold indicator I prefer. This will in the end help me decide I think though.
     
  5. f-man

    f-man 4Xangels Representative

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    I have seen your posts so far and you seem to be on the right track! Keep working hard and you will be rewarded!
    I always advice to invest time instead of money for a certain period in the beginning. The length of the period depends on how intensive your study is.
     
  6. Anita V

    Anita V Private

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    Well thank you f-man! I think you're right and I'm willing to invest as much time as it takes to start on the right foot. I do have a good job but I'd like to supplement or re-invest that income somehow and I think forex is how I'm going to do it! I may end up doing some live trading soon but with the smallest investment/lot size I can find, just to get a feel for the difference between live vs. demo.
     
  7. davidshanks

    davidshanks Recruit

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    Hiii there,

    Here’s my understanding about over sold/bought condition and the RSI indicator which is used to determine the trend of underlying securities by providing buy and sell signal.


    Market is overbought when there has been too much buying and it’s in oversold condition occurs when sellers are active in the market and they push the price down. As the name suggests, when market is overbought, the buying has been excessive and we can expect the price to make a downward correction or a reversal. On the other side an oversold market signals a possible increase in prices.

    RSI or Relative Strength Index is a leading momentum based technical indicator which shows when a share/security has been overbought (people pilling on) or oversold (people selling like anything).

    What this means is whenever the RSI line of a share/security breaches one of these 2 levels it will correct itself and start to trade at its optimum value. RSI shows these 2 levels via 2 readings, that is 70 for overbought and 30 for oversold, like the example below. When a price of the security hits 30(or moves below 30) that means it has been oversold and will now correct (Retract back) itself and go higher, hence you go long on it buy and hold the security. When it hits 70(or moves above 70), that means it has been overbought and now will go down hence one sells.

    One thing to note just because it hits the 70 & 30 marks does not mean it will immediately correct itself, one needs to wait for it to come below 70 or above 30 and then go long or short on the security. Sometimes a security can remain in overbought and oversold territory for quite some time. It’s all about knowing the trend with RSI to go short or long. So as soon as it retracts from said 70 and 30 levels, one should go short/sell and long/buy the said security.

    RSI's calculation if you are interested

    RSI = 100 - 100/1 + RS
    where RS = Average Gain of 14 days / Average Loss of 14 days
    the 14 day look back period is generally taken as a rule but can be changed accordingly as per user needs. it’s called the look back period.

    A lot of people use look back period as 10 days also and 80 for overbought and 20 for oversold. it’s all about their view and how stock sensitive they wantthe indicator to be.
     
  8. Albert Dcosta

    Albert Dcosta Private, 1st Class

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    It is always better if we have done some background research before doing our trades because in this case the opportunity to get a good income is always there.

    And we can just see and understand this fact that if our choice of the Indicators is good then we will be able to see nice profits coming into our trading accounts :)
     
  9. John Mason

    John Mason Private

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    We must try to use only such indicator about which we are having some knowledge because if we are using correct indicators we will surely become successful here :D
     
  10. Aaron Dias

    Aaron Dias Recruit

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    If our trading knowledge will increase that will lead us into doing such types of trades that will give more income and trading power to me in the future trades.
     

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