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Mean that price action on the pair is like a tightly compressed spring Or Slow Stochastics indicator reads Overbought for example, does not When an indicator goes into the Overbought/OversoldĪreas, remember that it can remain there for quite some time. Well…what is the proper reaction for casseroles and car engines is not necessarily the right reaction when trading. They expect price to snap back like a rubber band when it reaches these Territory we must begin to take long positions. Orders caused price to drop and the indicator to move into oversold The opposite and take a short (sell) position. Price up and pushed the indicator into overbought territory, we must do They reason that since many buy (long) orders moved Overbought or oversold trading scenario is to do the opposite in that The initial and almost immediate reaction by many newer traders to an Given these natural reactions, it is easy to see why Stop doing what caused the engine to become overheated in the first What if your car’s engine is “overheated”? Sameĭeal…you do what it takes to get the engine cooled down. Its current overdone state and the sooner the better. You see that it is “overdone”, what is your immediate reaction?Įxactly…you take the dish out of the oven. If you are cooking something and you check on it and Here’s What You Need to Know about "Overbought" and "Oversold" : So, what are overbought/oversold levels and how to use them? Read this small article : It may be many variations of this simple Schaff system but most of them are related to overbought/oversold levels of this indicator. If you instal indicatiors and use this template so you will get the chart like that: Take profit: Close the trade if the Schaff Trend Cycle indicator moves down to -10 and then rises back above +10.Place stop 3 pips above the most recent level of resistance.Wait for the Schaff Trend Cycle to reach overbought territory on the chart (90-110), go short when the Schaff Trend Cycle turns back below 90, and Stocastich crosses line down.The 100 exponential moving average is sloping down.Take profit: Close the trade if the Schaff Trend Cycle indicator goes below 90.Place stop 10 pips below the most recent level of support.Wait for the Schaff Trend Cycle to reach oversold territory on the chart (-10 +10), go long when the Schaff Trend Cycle turns back above 10, and Stocastich crosses line up.The 100 exponential moving average is sloping up.There are a lot of trading systems based on this indicator. Forum on trading, automated trading systems and testing trading strategies
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