I am very happy to talk in this forum, it is the first post I do. I have being practicing forex in my demo account for a couple of days, and I have almost completed babyPips school. However, I am facing an issue, and that is when i have indicators, and I have clear signals of the market being “overbought” or “oversold” and i try to enter my trade the price keeps going in the direction it was… therefore i am getting a losing trade. Its the reason i am losing because i am entering to early? and should i wait for instance a reversing candle before entering my trade?
Prices can continue to move even though they remain in an overbought or oversold state for some time before reversing. Signals from indicators showing these states are more appropriate as flagging considering exiting existing positions rather than entering new ones.
If you are going to use these conditions to enter reversals i.e. picking tops and bottoms then I think you need something else to confirm the timing. This could be PA-based S/R levels or FIb levels or maybe MA crosses, etc.
Personally, I think picking tops and bottoms can be risky but, when correct, can be very rewarding. It may be wise to also look at the main trend on a higher TF before picking reversals on a lower TF.
I see; it must be a trusting the “indicators” issue and using the logic “overbought” I must sell, or “oversold” I must buy. But you are right. Unless i don’t see a sign of reversal I should definitely follow the price.
Oh, i see; it interesting how one person can read all this theory, however, it is not until the practice where you can actually tie all the techniques together in order to understand what is going on.
These oscillator indicators with “overbought” and “oversold” zones need to be used very carefully, if at all.
“Overbought” and “oversold” may not really exist at all.
People who write “trading teaching materials” have a different idea about them from the idea that prices and markets have.
The best analogy I’ve seen is the one comparing “speed” and “acceleration” of a car.
If the car gets faster and faster, you know it can’t continue for ever, so that’s like “overbought”. Some time it will come down. It can’t accelerate for ever. But who knows when?
It can be “overbought,” and the rate at which it accelerates can very gradually slow down, but meanwhile it’s still going very fast and maybe even still gaining (a little) more speed for a long time.
The time to enter the “short trade” might be when you see the driver put the brakes on. When it comes back from above to below its “overbought” level. Not before?
Or maybe just trade price and not indicators, as Tommor suggests?
One of the ways to use the Oscillator Indicators is to smooth them by increasing the periods.
The RSI for example is normally set at 14, to smooth it you can set the periods to 20-25 so you are getting less signals but better quality entries on any Time Frame (even tick charts).
Go over to the Stop Loss Thread (Link below) and you will see how the CCI (Oscillating) indicator is used to signal both entries and exits when smoothed.
Price action can be used in conjunction with any strategy, but a correctly set indicator can be just as rewarding when used with strict rules…
May I know your indicator name? In this case, you can add support and resistant levels to identify the market trend; no doubt S/R levels are very much important for recognizing the
I don’t trust oscillator with overbought and oversold, because it is very hard to use.
try this experiment,
Open 4 chart of the same symbol (e.g EURUSD) but different time Frame, M15, H1, H4, D1 (or anything you like)
using your indicator, it will tell you different story in each time frame… One will tell you it is overbought, one will tell you it is oversold, and other maybe is still in the middle (either going down or going up), for me I think it is very confusing. which one will you trust ? will you buy or sell ? you can`t rely just from one indicator to trade, otherwise everyone will be a Millionaire
And in my personal opinion Overbought and oversold indicator is suitable only for fast trading (scalping) or small profit, if you are targeting bigger profit it is quite hard to master, because before you reach your target profit the indicator already osscilate back to the lower or upper region (Overbought and oversold, also depend on your time frame)
It isn’t right to blame indicators for being unreliable and hard to use when you’re using them wrongly. As entry signals they look like a reliable short-cut but its still a flawed approach, like a doctor diagnosing an illness by talking to the nurses -
they should really be examining the patient (who goes by the name of Price).
Either way, even if an indicator gives a poor entry signal and you use it, you can still make a lot of money, not just a scalp’s worth, by riding the trend you’ve just fortunately got into and pyramiding your positions along the way. So why not just look for the trend?
don’t rely on indicators or patterns trading. indicators are tools there to guide you. use price action to truly read the market and understand the logic behind or else its just a Hit or miss game.
I understand thank you. Right now i am reading the book Naked trader and it basically saying what you just said. I was like trusting to much in indicators and not in what is happening on the market. I am currently manual backtesting in on january 2016 all the way to December of that same year. And the experience i am getting is priceless, i went from reading indicators to using more support/resistance points, candlesticks, and price action. It has allowed me to understand the indicators and choosing the one that adapt to my personality. Right now i have not being able to do more advance orders, and the best of everything is that i am getting all this experience without putting one single dollar in the market. However, It will never replace the emotions involved when real risk is involved but at least i am getting the technical analysis down.
