Hello everyone. I’m quite new to the Forex world and I want to use a system that incorporates oversold/overbought indicators. I know there are a bunch of different ones to use. I plan to trade on a 60 minute chart or less. Can anyone give me their recommendations on good oversold/overbought indicators?
I think stochastics are a good choice. I’ve been using them on various time frames and they seem pretty accurate at finding moments of extreme overbought or oversold conditions. Just be careful when it’s in the middle ground because at those times, the market could move either way even if it’s heading in one direction.
To tell you the truth, it doesn’t really matter in my opinion. They all do pretty much the same thing…tell you overbought/oversold conditions. The most important thing is that you understand what the indicators are telling you.
They do all act very similar. My weapon of choice is Stochastic. I also look at RSI, CCI, and OsMA.
I prefer to not to look as overbought or oversold but more to spot divergences.
You also have to know whether the you’re in a trending (one way direction) or sideway (directionless) markets.
You’ll get killed using oscillators in a trending environment but make a killing in a sideways one. The hard part is knowing which one in you’re in.
Knowing whether you’re in a ranging or trending market is pretty difficult. Just remember that statistically, most markets trend 70 to 80 percent of the time, so you’re pretty safe with range bound strategies. Just always be ready for a big move because that’s where 90% of the money is made!
I have tried RSI and Stochastic.
Be careful though, try not to use them exclusively. Sometime the trend ignores these extremes. Check recent rise of GBPUSD in 4hr chart…rsi was hitting 90 I remember…also EURCAD daily chart is way close to 90 reading…(I am talking about RSI which is regulary overbought at 70). Other times, the market will consolidate too little to clear these overbought and oversold areas. It didn’t make a retracement, rather consolidated within tight range and that would be the bad point about using such indicators.
I told you this cause I experienced the pain of counting on such sweet indicators RSI and Sto.
I like Bollinger Bands with to 20 period moving average sailing down the middle,usually on the 15-minute chart.
I’ve been demo trading for several months now. the advice I can give you is whenever using stocs, just go back in time to see how the market reacted whenever the stocs were at overbought\sold. if it reacted the way it should (by retracing) - it might indicate a certain reliablity.
go back and see what heppend in similar cases - then decide if it is to count on.
what kind of stochastic do you use? is it fast or slow? which one works better generally?
i myself hardly use fast stochastic. i always use slow one in my 1 hour, 4 hour, and daily chart.
I like the settings that I found on a CI system PDF which hsa been floating around which are using Full stoch (15,3,3) on shorter charts of 5 & 15 min, and (8,3,3) on longer term charts of 1hr, 3hr & daily. I also like to use RSI & ADX for determining Trends or Overbought/Oversold conditions or looking for divergences. I just started demo trading after a year of reading and studying so it’s looking good so far
one year of reading and studying is a lot.
why don’t you demo trading as you applied what you’ve read and why wait for one year?
it seems you’ve read a few pdf articles there. :rolleyes:
I’ve been reading some really good books and studying technical analysis. I particulary like all of the Steve Nison candlestick books, a few new books by Kathy Lien and Mark Douglas. The problem I faced was that I had just bought a house, got married, had a baby and then got laid off :mad: so my time was limited. I chose to just read and screw around with demo trading but not take it serious. It’s just recently that I started trying to develop a system and practice all that I read. One problem I faced was information overload from reading too much. The great thing is is that it was this site that started me off in the right direction
so you’ve started your living and trading in both the same time that’s nice to hear.
babypips sure helps a lot