Overbought/oversold condition explanations | Forex Factory

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Overbought/oversold condition explanations

  • #1
  • First Post: Apr 16, 2010 12:49pm Apr 16, 2010 12:49pm
I really don't get how this 2 contidion are determinated.
There must be some math behind them because we have the indicators that show us that conditions...
Can anyone explain plz?
  • #2
  • Apr 16, 2010 12:55pm Apr 16, 2010 12:55pm
There is no such thing as Overbought or Oversold. It's pure Bullshit.
Price is the equilibrium of Supply and Demand. So how can this
equilibrium price be overbought? The Market is just doing its job.
  • #3
  • Apr 16, 2010 1:11pm Apr 16, 2010 1:11pm
Quoting TJPLD
There is no such thing as Overbought or Oversold. It's pure Bullshit.
It looks great in hindsight, almost as good as everything else

Alas my broker will not, despite repeated requests, let me trade off yesterdays market.

To coin a phrase: "Left is history, right is mystery."
  • #4
  • Apr 16, 2010 1:30pm Apr 16, 2010 1:30pm
I think these terms are carryovers from securities trading where a stock really can be OB or OS. They really don't make much sense in spot forex.

It's understood that when a pair is described as OB, it means price has reached a certain percentage/level above the mean (below the mean for OS).

Trick is determining the mean and what is that magic "certain percentage/level".
  • #5
  • Apr 16, 2010 2:43pm Apr 16, 2010 2:43pm
Agree...

in stocks we have a known and limited number of shares, a open bid/ask book, and reliable market volume...

Well... I use oscillators (the main source of the so called OB/OS info), mainly to spot some divergence, as another tool.

I like this quote:

Quote
37) Stochastic – Another money sucker. Personally I think this indicator is used backwards; when it first signals an overdone condition that’s when I think the big spike in the “overdone” currency pair occurs. To be overbought means strong and oversold means weak. Try buying on the first sign of overbought and selling on the first sign of oversold; you’ll be with the trend and likely have identified a move with plenty of juice left. So if %k and %d are both crossing 80; buy! (Same on sell side; sell at 20)

the original post can be found here

Cheers!
Many share my views with me. But I don't share them with them...
  • #6
  • Apr 16, 2010 8:25pm Apr 16, 2010 8:25pm
The moral of the story and what everyone is trying to say is, don't waste your time with OB OS ... it's complete bull$hit. In the "real market" there is no such thing as OverBought OverSold. In the real market there is only "up" or "down" and it is up to you to determine this, not an indicator. Don't waste your time with oscillator indicators.
  • #7
  • Apr 16, 2010 9:09pm Apr 16, 2010 9:09pm
ty for the replies, right now I'm not try to find the holy grail with some indicators.
I just wanna know how le more common indicator works and why they are usually wrong... just curiosity
  • #8
  • Apr 16, 2010 9:19pm Apr 16, 2010 9:19pm
Quoting AQs
ty for the replies, right now I'm not try to find the holy grail with some indicators.
I just wanna know how le more common indicator works and why they are usually wrong... just curiosity
Indicators aren't necessarily wrong. They're only used and interpreted in the wrong manner. You seem to be on the right track, though. If you choose to use an indi, it's highly recommended you know how it works inside and out. They all have strengths and weaknesses. Study and test them thoroughly before you go live.

GT
  • #9
  • Apr 17, 2010 6:37am Apr 17, 2010 6:37am
Quoting opie999
Indicators aren't necessarily wrong
Yep, I meant a different thing but due to my bad english I didn't explained well.
As you said I need to study what is behind the indicators in order to understand how can I use them profitably...

BTW.... nobody have reply to my question yet...
Does anybody knows how work the indicators based on oversold and overbought conditions ?
  • #10
  • Last Post: Apr 17, 2010 5:35pm Apr 17, 2010 5:35pm
Quoting AQs
Does anybody knows how work the indicators based on oversold and overbought conditions ?
There are several and they all work differently. Suggest you focus one in particular and start your research here...

http://www.investopedia.com/dictionary/default.asp
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