Overbought and oversold

Hello, Recently these terms becomes very frequently heard... haha... this is expected as these indicators will be showed very actively on most charts due to the price movements...

So, maybe it is good to discuss a little about the functions and the limittations...

first of all, wat affects the price of stocks? i believe it would be the balance between supply and demand... ­

base­d on this, wat is oversold? meaning something is aggressively being sold... so the supply will be more while the demand for it is low... wat does this mean? there is too much products circulating and people are not willing or will not have to bid for the products with a higher price... so, the price will drop... and the opposite stands for overbought...

this is also why people depending highly on this indicator will buy when the stock is being oversold and sell when the stock is being overbought.

however, how dependable are these indicators? well, let us look at the pros and cons... the dependability will also depend a lot on which phase or trend the stock is in... wether it is on an uptrend, downtrend or range bound... why do i say so? there are some interesting points worth looking into...

if you believe tat overbought means time to sell and oversold means time to buy, let me ask you, how can a stock go into or continue on an uptrend if it is no high demand over supply? how can the price continue or start to go up if it is not being overbought? :)

how can a downtrend start or being kept if it is not being oversold?

this is also why the phase or trend of the stock is so crucial in determining how dependable this indicator is... hehe...

i do not use indicators, but if you insist on depending on this indicator, be aware of the phase, it is a lot more dependable when the stock is in range movements and highly dangerous if used solely on trending phase...

most indicators are not suitable to be used alone... and this happens to be high on the list... so, maybe it is safer to use this indicator to find stocks to be put into your radar while using other more fine tuned method or indicator to time the entry and exit point... :)

Correction or Crash?

Hmm... a lot of panic is starting with our market these days... and with today's superb drop... how many of us can sit still? a lot of topics like "wat to buy? is it the time to buy? it is bargain time! everything is cheap!". now i think it is important to revise the posting.. http:// www.talkandshare.com /index.php/ Technical-Analysis/ 378-Volatility-Vs- Severe-acute- distribution- Crash......-P.html

why do i say it is good to revise? it is because, correction has its opportunities like volatile market...

now, how about correction? i'm unsure of the world market sentiment, as i am not good at fundamentals... but if we take out our market and analyze it technically, i think it is more likely under correction rather than a crash... why do i say it is a correction? because it is an expected move form the charts from a few days back... if the supports do not hold, then it may not be a mere correction anymore... if it is a mere correction, support will hold and rebound will come... if it is not... i also got no eye see liaw...

so, the crucial thing now if you were to trade with a heavy weightage on CI, you will need to decide if this is a correction or a crash before making your next move... both starts with C, but the meaning and outcome is very different...

Regards and good luck!