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overbought or oversold condition?

  • #1
  • First Post: Jan 20, 2007 12:56am Jan 20, 2007 12:56am
Hi all,
first i hope you don't mind if i post in your forums since i'm pretty new and i should be in the Q&A forums...
second....i have been looking at charts and price action for two weeks and building on a system that i have in mind...so far i have tested it backwards, and last week with a play ccount. The point is i try to sell when it's overbought, and buy when oversold, based on a 9 RSI, 15 mins chart.
Now i have noticed that whenever and overbought or oversold condition begins, no matter how much in overbought / oversold it can go ( oversold dipped this friday for more than 40 pips on EUR/USD ) at the end it always comes out at least at the highest point of the candle it went into. ( btw: it seems it does not apply for USD/YPJ).
Apart from me being unable to wait for hours for the inversion of trend, is this a statement that could have any fundation? is it true that it always comes back out?
thx
I might not know, I might not have the money, but remember, I have TIME!
  • #2
  • Jan 20, 2007 1:08am Jan 20, 2007 1:08am
Quoting Fxnoob
Hi all,
first i hope you don't mind if i post in your forums since i'm pretty new and i should be in the Q&A forums...
second....i have been looking at charts and price action for two weeks and building on a system that i have in mind...so far i have tested it backwards, and last week with a play ccount. The point is i try to sell when it's overbought, and buy when oversold, based on a 9 RSI, 15 mins chart.
Now i have noticed that whenever and overbought or oversold condition begins, no matter how much in overbought / oversold it can go ( oversold dipped this friday for more than 40 pips on EUR/USD ) at the end it always comes out at least at the highest point of the candle it went into. ( btw: it seems it does not apply for USD/YPJ).
Apart from me being unable to wait for hours for the inversion of trend, is this a statement that could have any fundation? is it true that it always comes back out?
thx
Hi Fxnoob,

There are a few things you need to keep in mind.

RSI is an oscillator that generates false results in trending markets.

You need more than direction of price movement to enter a trade. For example you need to calculate the probable profit target and stop loss levels.

It's almost impossible to make money just by focusing on one indicator.

I'd suggest to read through the Fozzy daily trading system thread of if you are interested in automated trading the PipBoxer system. You'll find several posts over there that will help you to have a better understanding of the trading approaches.

Good Luck,
Al
  • #3
  • Jan 20, 2007 1:41am Jan 20, 2007 1:41am
thx ,
i've alredy seen the fozzy and your pipboxer2, unfortunately i trade with oanda and they do not allow automated trading as far as i know. however, i was just wandering of the correctness of the statement, for EUR/USD in particular, that whenever there's a oversold/bought condition it always comes home at he end. Quantifing the tp and sl is something i'm working on, and the RSI will not be the only indicator on wich i'll base my entry exit. it's just something i wanted to see if any1 else noticed, and if it has any ground for further "research".
I might not know, I might not have the money, but remember, I have TIME!
  • #4
  • Jan 20, 2007 2:37am Jan 20, 2007 2:37am
Quoting Fxnoob
thx ,
however, i was just wandering of the correctness of the statement, for EUR/USD in particular, that whenever there's a oversold/bought condition it always comes home at he end. Quantifing the tp and sl is something i'm working on, and the RSI will not be the only indicator on wich i'll base my entry exit. it's just something i wanted to see if any1 else noticed, and if it has any ground for further "research".
I would be very careful & strict on how to play the overbought/oversold conditions of any oscillator. One of my first strategies was based on something similar, I too noticed this "always comes home at the end" effect, unfortunately not being able to spot when will come home and how much will go further before coming home caused me bigger losses than wins.

Remember that many times the oscilator comes into overbought/oversold territory as a result of a strong trending market. Not all trends retrace at the same rate/percent, some even go twice as much berfore any significant retrace.

It may be possible to develop a winning strategy around this idea but not as simple as at first sight.

Goodluck!
-soso
  • #5
  • Jan 20, 2007 4:16am Jan 20, 2007 4:16am
Like many newbies who believes that RSI overbought/oversold will work is not so true especially if the trend is real strong that it can stay up there for a very, very long time. You need to use some other method in trading. I have seen those who depend upon RSI and MACD to trade, and they all get kill. Of course when you look back in time, they all look great, but not in real trading. Though you may see some systems posted here which uses these indicators, they will also take into consideration like MA, BB, and other factors.
  • #6
  • Last Post: Jan 20, 2007 6:23am Jan 20, 2007 6:23am
Thank you for your reccomendations and thoughts, really apreaciate it.
/bow
I might not know, I might not have the money, but remember, I have TIME!
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