I’m pretty new to Forex, and I’m some personal study on stochastic oscillators, moving averages and RSI.
I’m currently following GBPTHB currency (as I’m British and live in Thailand).
I think I’ve managed to confuse myself with the picture attached. From what I read, the slow MA has crossed under the fast MA which indicated a buy signal (long position), but the %K line passed under the %D line close to the overbought region, which would indicate sell (short) position. Can anyone clear this up for me?
I’m a great sceptic on indicators but plenty of people get assistance from them. If you must use them, that’s what they should be - assistance - not your main evidence.
Slow MA falling below the fast MA is not a buy signal. Some people use fast MA crossing above the slow MA as a buy signal, but its a very poor signal anyway as it lags price action and is not highly reliable.
Bear in mind some over-bought/over-sold indicators can move into their extremes and just rest there for long periods of time. When e.g. RSI first becomes over-sold, this is not a buy signal - it doesn’t even mean you should not be short - at best, its just a warning to be cautious if you are short or intend to be.
Exactly so … if wanting to look at a faster MA crossing up above a slower MA as a potential “buy signal”, it will also be much more reliable if you limit it to the occasions when both MA’s are also [I]rising and diverging[/I]. And more reliable still if you take it just as a “general indication to look at price-movements with a view to finding a good time for a long entry” rather than as a “long entry-signal” in itself, in other words more as a “directional bias indication” than as a specific reason for entering a trade there and then.
Crossovers of MA’s moving in opposite directions are sometimes referred to as “dead crosses” because they’re far less reliable indications.
“Overbought” and “oversold” are simple (and widely over-interpreted) labels for complicated phenomena.
An analogy which may possibly help you is of the “speed” and “acceleration” of a car: the [U]rate of acceleration[/U] can decline for a long time while the speed itself [I]continues to rise[/I].
