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... :)
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... :)
7 comments:
great post.you make it very simple to understand.
Nice post. Thanks
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