overbought oversold indicators This is a topic that many people are looking for. bluevelvetrestaurant.com is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, bluevelvetrestaurant.com would like to introduce to you How To REALLY Use Overbought And Oversold Indicators. Following along are instructions in the video below:
“Welcome to a new video today. Let s talk about maybe one of the most most commonly misunderstood things in trading. They are and it s about overbought and oversold your indicators. I used the stochastic indicator for this example.
But those concepts now will apply to any oscillator. Where you have overborne oversold. The mix that when the market is entering overboard yes. In this area is ready to reverse or the mark the mustard.
When the indicator enters oversold that the market will turn around is 100 completely completely wrong overbought and oversold have nothing to do with a reversal over the market. That is going to turn around i have looked at all indicator formulas they are and there is no single component in your indicators. None indicator that shows that when a high or low volume value is achieved or reached that the market will turn around it is exactly 100 opposite and it means that when your indicator enters oversold for example as it does here the blue line on your indicator on the stochastic. It entered oversold here it entered oversold here.
What does it mean it means when you look at the indicator formula and this is the same for every indicator. Stochastic rsi or whatever indicator you use whenever you have an oversold value on your indicator..
It means that what has happened previously on your indicator shows that on on a price action shows that you are in a strong downwards. Moving market. So let s take a look here we have a strong strong sequence of bearish camels and this cost then the stochastic to move lower it shows us or the way. The stochastic calculates overbought oversold shows that when the market is going down and when the market is closing ad.
It slows. It will go down to a very very low value when the market is in an up friend or when the recent candles like it has here when the recent candles have been moving high up and they re pushing in to new heights. Then the stochastic will reach overbought that is the way. The indicator is set up so it does not have anything to do with reversal trading at all when you see that the stochastic is reaching oversold for example.
It means that you are in a strong. Strong bearish market and look what happened if you enter a trade just because the market is an oversold here. You will be buying as as long as the market is going down and the market as we will see in future examples in this video. It can go down even though the indicators and oversold for hundreds and hundreds of pips and you will certainly go broke.
If you try to trade against overbought and oversold one thing that you should use or what you could do instead is use it as a trend. Continuation or confirmation signal..
This is very contrary to popular belief. But this is actually what the indicator is telling you when you are in overboard look for long s. When you are an oversold look for shorts. That s the safe and a smart way to do it here for example.
Let s see the price entered over order sarcastic entered overboard because the price was pushing higher ever since here you can see that the stochastic rose. Because the price rose and then we entered overbought here. And it kept going and going and going and going and going all the way hundreds and hundreds of pips here and then even afterwards when the market or when a stochastic left over bought you did not have a reversal. You just had range and then the market was back at rallying and the stochastic was back in over board here we went higher.
Many many pips and then here. We shift the direction yes at some point you might get a change in direction. But it is not going to work that you are trying to call a top just because the market and stochastic is an overbought and you will definitely go broke. There s no way around that here another example now.
The market is pushing into new lows. You can see that we have a very strong bearish sequence here with the price action candles and the stochastic is entering oversold..
It was down and down and down and down and down for a long long time. This is a four hour chart. So this is more than probably one week of trading activity and then even afterwards even when the stochastic girls out of overboard. It is not setting up a rally.
You re back at the previous loss immediately. So even if you go against the stochastic. At one point. You will end up losing money.
Then then the trend is continued. We are moving down and down and down and down and down for a long long time so going against the oversold indicator will put you in a position as a losing trader. There is no value in going against the oversoul oversold look at the indicator formula. You will see that the only thing that means is you re in a very very strong bearish market.
The camels are going to the downside they re closing at the lows. So there s no point in going against your oversold whatsoever..
We could do this for a very long long time. It is the general way. The indicator behaves. The indicator goes into over board.
Here. And you can see that the uptrend is just getting started here so don t go against the indicator. Please that s the worst thing you can do the indicators going into oversold here you can see that blue line dips into oversold and we keep moving lower and lower and lower for a long long time. And then this behavior will repeat itself.
Time and again. So you can see going against overbought and oversold are very very bad ideas. Because it s not the way. The indicator is built and it it is not what the indicators telling you look at any indicator formula.
It s not complicated but you will see that what it is telling you when it comes to over bottoms oversold is not what general trading knowledge will tell you it is the confirmation for a draw a strong ” ..
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