Thoughts on oversold and overbought markets.

As with any indicator all it really provides are breadcrumbs or if you will, a post. Something visually attracting to help you remember the next time it happens. If you are looking at an indicator without context you are betting on three things: you saw it first, others will see it soon and react, and it is the most important data point. So as you can see, that is a bet is risky.

Gathering Context

Buying an oversold market or selling an overbought market is generally best in a distributing, range bound market. In an uptrend buying an oversold markets is the best.  In a downtrend selling an overbought market is the best.  So you can where I am going with this.

Important

I am not against any indicator, they all serve their purpose.  And I would say that oscillators are the closest you can get to current looking indicator depending on the settings.  I know it is merely semantics but it is incorrect to say that the market is oversold/overbought.  The indicator is at a high level or low level in relationship to where the market is trading, is more accurate.

Remember a market can stay overbought or oversold longer than you can stay solvent.

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  • Anonymous

    “Remember a market can stay overbought or oversold longer than you can stay solvent.” >> Love it.

One Response to Thoughts on oversold and overbought markets.

  1. Anonymous says:

    “Remember a market can stay overbought or oversold longer than you can stay solvent.” >> Love it.

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