Oversold overbought forex
I searched and found out that there is only a small and defective article about these important terms on LuckScout, so that I decided to write a more detailed article about this topic to help traders understand what these terms are exactly. There are some too oversold definitions for overbought and oversold over the Internet. I am going to show you how RSI determines that a market is overbought and oversold. I have already published a few articles about RSI on LuckScout. I recommend you to read them to know what RSI is and how it works:. RSI is a good indicator in general. Read the above articles and you will know why. It can keep on going up for such a long time, even when it is overbought. Does it means that we can buy even when the market is overbought, and sell even when the market is oversold? If we do it when we are at the beginning of an uptrend, then the answer is yes. Some bearish candlesticks also form, but they can not take the price down and make the market oversold, and the uptrend will be continued. Therefore, if you know that you are at oversold beginning of an uptrend, and so you enter the market, you will make a lot of profit. It is also the same when the market is oversold. We can go short when the market is oversold, and the price forex keep on going down in case we are at the beginning of a strong downtrend. The only thing we need is that we know whether we are at the beginning of a downtrend while the market is oversold or not. With DBB Trading Systemusually we go long when the price has already moved up a lot and the market is already overbought. That is why I always say that trading is not about buying low and selling high. In most cases it is buying high and selling higher. However, as we only take the too strong trade setups, we can catch a trend while we are already in. We find out that we are riding a trend usually when the price breaks above a resistance in case of an uptrendor below a support in case of a downtrendwhile we have already taken our positions based on a too strong candlestick pattern. I will show you the examples later in this article. There are three horizontal lines or levels on RSI indicator window: Can it help us trade and make some money? Can it helps us enter the market with a better price? Can it help us take stronger trade setups and forex the weak ones? However, it is not necessary to have it on the charts. Let me show you some examples. Now, if a too strong bearish reversal pattern, like a too strong Dark Cloud Cover or Bearish Engulfing Pattern forms, it means bulls want to give the control to bears. The below screenshot is showing you 4 good examples at the same time. The first three at the left side of the chartare weak short trade setups and the last one is a too strong short trade setup. With the first three setups, although RSI had broken above the 70 level, the candlestick patterns are not too strong by themselves. Therefore, they have to be ignored. Therefore, this is a too strong short trade setup while the market overbought strongly overbought:. Now, some examples from the DBB System. As I mentioned earlier, we enter the market based on a DBB system trade setup usually when the price has already moved a lot. DBB system is good when we miss a trade setup formed based on our regular candlestick pattern Bollinger Bands system, because it shows us another chance to enter the market. As I mentioned earlier, the price can go much higher, when the market is already overbought, and visa versa. Usually when a DBB long trade setup forms, the market is already overbought. The DBB long trade setup on the daily chart, was a good chance to go long, for those who had missed the forex long trade setup to learn more about this trade setup please read the related posts here. As you see on the below chart, candlestick 3 formed a DBB long trade setup while RSI was so close to the 70 level. And when the next candlestick opened which is actually the right time to go long after the DBB setup was formedRSI also broke above the 70 level. As you see, the price went up strongly while the market is too overbought. It is possible that it goes even higher:. You go long based on the Candlestick Bollinger Bands system when the price is already oversold, and you go short when the price is already overbought. To take a position, you need a too strong and good trade setup. When there is no trade setup based on any of our trading systemsit is risky to go long when the market is overbought, and it is risky to go short when the market is oversold, because the price can reverse at any time. Also when there is no strong trade setup based on any of our systems, it is risky to go long when the market is oversold, because it can keep on going down. It is also risky to go short when the overbought is overbought, because it can keep on going up. It is only a too strong trade setup based on the only real time indicators candlesticksthat tell you whether you should go short or long. The price can still go against you, even when RSI has already confirmed the trade setup. The only thing that can save us from losing money, and help us have more winning trades is the candlesticks that are the only real time indicators. Learn our trading system and make money through forex trading risk free: Become A Profitable Forex Trader In 5 Easy Steps. I can see a strong short trade setup forming for NZDJPY. The price seems to have turned at a resistance level at I know we have to wait for the candlestick to close,but if he closes like a bearish engulfing should that be a reason to close the position or to move up or SL for example? Or is the strong weekly set up strong enough to stay in? If it closes as a too strong bearish engulfing, we have to get out, specially because it is under or around a resistance level. However,i find it very dificult to decide when to get out to maximize profit. I still have to learn a lot about that. I think it is also very important and hope you can learn us how to handle overbought. Have you read this article? Hi Chris, audnzd forming bearish engulfing on daily chart. Too long bearish candle. Is it a strong set up if the candle close oversold long bearish? Since tail length must be viewed in regard to overall candlestick length, a rule-of-thumb would be very useful. Lower and upper BB breakout…. Occur at exhausting trend…. Thank you for the market analysis and advice us to remind patience to wait for the too strong trade. As you said its great for the long run. Found a short trade dark cloud cover on daily GBPCAD at As you said, the lower tail should not be ignored. AUDUSD is making noise for sometimes, but current bullish candle has oversold the 0. I think it will continue its bearish trend. As we have been following this pair for such a long time and we already had a short position, I am going to analyze it today. A short position is formed on monthly chart based on the DBB system. I am going to analyze this one today too. Hi Chris Apologies for my late response sometimes, difference in time zone. I have a few questions regarding trade management 1 When 2 positively correlated currency pairs give a score, how do you play such scenario, would you split risk between both set ups i. Sorry bout the long questions Chris, just curious. It is explained here: Yes, I sometimes do it. When they look strong and valid I consider them. Chris, One more time thank you for your articles. You are doing amazing work. Looking at your screenshots and my charts, I can see that there are some differences in the candlesticks. I have forex in some of your replies to comments older articles that this is due to the different time zone that different brokers use. Does this mean that if we are trading with a different time zone, our candlesticks daily for example will close at a different time? Sorry if this is a silly question but I think I am a bit confused. No, it has nothing to do with time zone. It is related to platform sever time. It can be different from broker to broker. If you are talking about the daily chart, then the upper shadow is longer. However, the candlestick pattern is not strong enough by itself. Yes, it is a strong resistance level at We can not go short just because the price has reached a resistance level. What if it wants to break above the resistance? We can go short if it forms a strong short trade setup below the resistance. Is this a right approach because I know that the bearish engulfing pattern formed on Hi Chris, your analysis and comments are always very valuable. Although a novice trader might know basic rules for strong trade setups, there are still a lot of details on everyday charts that can help recognize current situation on the market. This is what some other users also asked. An a few pips lower shadow is OK, but anything more than that is a negative point for a short trade setup. Hi chris Thanks a lot for this nice article. There are something in the article. One is error type and the other is my questions 1-in the article end line just before conclusion there is an error type: In this case does it mean RSI not confirmed the strong setup? While in the same chart on example long trade setup we have RSI divergence. I have learned a trend will reverse if we have divergence. Why a trend could be reversed while we do not have it? Divergence forms when the candlesticks becomes smaller but still the price goes up while making the second high. In this case, still several long candlesticks formed while making the second high. Price can change direction at any time and under any condition. All we can do is that we use the tools we have to get in the market if possible. I believe the writer stated this would smooth out the signal. I do not remember exactly, so, this is why I am asking…. If so, please, verify and or elaborate best way to setup RSI … Thank you …: Yes, this overbought what some traders do. Adding MA to indicators like RSI can eliminate the noise. But I prefer to use oversold indicator itself. That means, as a novice trader I can use it to confirm my too strong setup. Thank you Chris for answering my question. I had been confused as to which way might be best in regards to setting up the RSI indicator. Now, I have a direction…: Get Our New E-Books For Free. RSI As A Great Overbought Oversold Indicator For Forex Trading By: Relative Strength Index RSI Last Updated: Enter Your Email Address and Check Your Inbox: LEARN Overbought PROVEN BUSINESS PLAN. 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