Overbought or oversold?
Page 1 of 128 123451151101 ... LastLast
Results 1 to 10 of 1273

Thread: Overbought or oversold?

  1. #1
    Educator
    Join Date
    Jun 2013
    Posts
    1,105
    Promo (¢)
    15
    Thumbs Up
    Received: 568
    Given: 191

    Overbought or oversold?

    Hi traders!

    We hear it very often that market is «overbought» or «oversold». But is it really possible to understand this looking at the single price chart without knowing real open interest (we don’t have this information for Forex currency pairs)? Some traders try to use RSI or other oscillators (divergences as usual) to spot «overbought» or «oversold» market.

    First, let’s define what overbought (oversold) market is.

    We all know that for every buyer there has to be a seller to have transaction executed, otherwise there’s no trade. So, how in the world can we have something «overbought» or «oversold» - do we really assume that there can be more buyers than sellers?

    Let’s distinguish market participants of 2 parts: Smart money (institutional players) and public. Smart money often have information about large orders, they have access not only to interbank liquidity, they also execute orders of big clients, so they know what big guys are going to do – they work on the behalf of those big guys.
    On the other hand, we have «public» - uninformed market participants that usually just react and don’t have access to real liquidity.

    Does really «public» exist on Forex? After all, it’s interbank market with minimum position size of 1 million. By «public» I understand not really retail traders that operate with 100 USD accounts, not at all. By public I mean orders brought to the marketplace by large ECN networks like EBS, Currenex e t.c. Such marketplaces collect smaller positions from retail traders all over the world and hedge them in the interbank market.

    So, not directly as on the stock or futures market, but «public» exists on Forex as well. Also, I guess, often hedge fund managers that operate with large client funds, act as a «public» - they fail to recognize real game that smart money plays in the market and tend to.

    Why am I talking about this?

    Situation of overbought market condition occurs when public accumulates extremely long inventory (even if smart money players are not too short). The same situation occurs when they hold extremely short inventory – we say that market is «oversold» in this case.

    There are numerous clues that allow trader to spot overbought/oversold condition, but I want to show you recent example from GBPUSD. I was writing before about COT reports and how they indicate activity of major market participants (on futures market, but on currencies as well – futures market is used for hedging purposes)

    Look that previous week GBPUSD has shown extremely long position of small speculators (red line)*. So, market has become really overbought

    cotreportgbpusd.png
    * according to timingcharts.com

    When small traders are very optimistic about possible growth, they bring a lot of fragile positions to the marketplace. Not surprisingly, market can liquidate (go down) very quickly if something happens.
    And market has liquidated after news release on GBPUSD – rapid movement to the downside was result of massive liquidation:

    liqui.png

    Not allowed!

  2. #2
    Banned
    Join Date
    Nov 2013
    Posts
    14,851
    Promo (¢)
    0
    Thumbs Up
    Received: 105
    Given: 14
    As a trading market, if the market is moving too much and for too long time, it means that things are changing towards the right or the opposites, depending on the region they are. Traders shoudl not be trading the extreme in the market no matter how visible these are. That could be the tuning point.

    Not allowed!

  3. #3
    Banned
    Join Date
    Sep 2013
    Posts
    27,036
    Promo (¢)
    0
    Thumbs Up
    Received: 285
    Given: 50
    Zones of the market have both the upper and the lower , that si why it is good to locate the right one and stop what you are trading at that time, this is a condition of the overbought or the oversold in the forex trading. If traders fight it more, it may turn back and move too fast against the trader.

    Not allowed!

  4. #4
    Registered user
    Join Date
    Apr 2014
    Posts
    734
    Promo (¢)
    -60
    Thumbs Up
    Received: 4
    Given: 0
    I am planing to use a overbought/oversold indicator to assist me in decision making in trading. At present i started to use Williams percentage indicator and learning this one. Can you share here which indicator is best for deciding the overbought / oversold condition.

    Not allowed!

  5. #5
    Registered user
    Join Date
    May 2014
    Posts
    296
    Promo (¢)
    45
    Thumbs Up
    Received: 1
    Given: 0
    I'm using RSI to identify market overbought and oversold situations , CCI can also be used for that. When the RSI is above 70 it is said that market is overbought and when RSI<30 it is said that market is oversold. you can buy when the RSI line crosses the 30 level from the below and sell when the RSI line cross from the above of 70 level

    Not allowed!

  6. #6
    Registered user
    Join Date
    May 2014
    Posts
    237
    Promo (¢)
    -20
    Thumbs Up
    Received: 2
    Given: 0
    Areas of the marketplace have both the reduce and also the top, why it's great to find the correct one and prevent that which you are investing in those days that si, this can be a situation of even the oversold within the forex currency trading or the overbought. It might reverse and transfer also quickly from the broker if merchants combat it more.

    Not allowed!

  7. #7
    Banned
    Join Date
    Sep 2013
    Posts
    27,036
    Promo (¢)
    0
    Thumbs Up
    Received: 285
    Given: 50
    Note that you are not doing this trading for fun, you are actually doing the trading for great trading expertise that you will show to the world so that it can be proud o you. In this you should not be doing this with negligence, if the market is reaching some threshold it is the right of the trader to quit it and not be greedy.

    Not allowed!

  8. #8
    Banned
    Join Date
    Nov 2013
    Posts
    14,851
    Promo (¢)
    0
    Thumbs Up
    Received: 105
    Given: 14
    I will not be doing this trading like the most trader do. There are truly some useful forex trading indicators that will help the trader to know the measurement of the extent the market has being going all day, this are RSI , momentum. They will get you the overbought of the market and the oversold, do no worry.

    Not allowed!

  9. #9
    Registered user
    Join Date
    Feb 2014
    Posts
    365
    Promo (¢)
    15
    Thumbs Up
    Received: 0
    Given: 0
    I agree with you. RSI indicator is a good indicator to understand the overbought and oversold position. CCI indicator is one of good indicator I think. If you trade with that indicator then you need to learn more about it and you need to practice more before start real trading. It is good trading strategy that you are trading by following overbought and oversold label.

    Not allowed!

  10. #10
    Registered user
    Join Date
    Nov 2013
    Posts
    1,482
    Promo (¢)
    100
    Thumbs Up
    Received: 6
    Given: 7
    Oversold and overbought it's very easy to see in chart but it is not easy when we watch on real market or fundamental event that will depend on economics level of a country, but if in technical analysis we can make some assumption that too many buyer or seller so we can make some buy or sell for a while before price get back.

    Not allowed!

Page 1 of 128 123451151101 ... LastLast

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •