This article will show you that there is no best overbought oversold Indicator for mt4 that we can use and have excellent profit. Instead, we will suggest a strategy that can help you to filter trades and avoid bad over-trading.
Overbought vs. oversold
Overbought represents the implication that the price of some asset (currency, stocks, etc.) has pushed the price too far after an unusually long run to the upside, and downside pullback is expected. Oversold represents the implication that the price of some asset (currency, stocks, etc.) has pushed the price too far after an unusually long time run to the downside, and upside pullback is expected. For example, the RSI price indicator (from 1 to 100 level) marks price above 70 as overbought price area and price below 30 as oversold price area.
As we know, an oscillator is an object (in our case line on chart) or data that moves back and forth between two points. We can use every major oscillator, such as Relative Strength Indicator RSI or MACD, or Stochastic Oscillator, to find overbought and oversold points on the chart. See the image below :
For the RSI indicator, the overbought area is above 70, and the oversold area is below 30. This tool majority traders use to find the overbought and oversold areas. But this is not a sign that you need to buy from the oversold area and sell from an overbought area.
So we need to make a filter and only choose some trades.
Here is one indicator that we use and decide how to buy from the bottom and sell from the top :
Example strategy :
Please download Overbought Oversold Indicator in MT4 :
Download OverBoughtOversold Indicator
As we can see in Figure, we do not trade every moment when the price goes into an overbought or oversold area. We have another trigger. It is an indicator that measures the current price and volume exhaustion.
BUY: If the price is an oversold area AND an hourly close area, the Overbought Oversold indicator shows the BUY arrow.
SELL: If the price is overbought area AND it is an hourly close area, the Overbought Oversold indicator shows the SELL arrow.
You can make a combination of every oscillator indicator (RSI, MACD, Stochastic, etc.) and some indicator that can filter the number of trades. It can be some histogram.
Why is there no best Overbought Oversold Indicator?
When we have an oversold area on the H1 chart, that can be the beginning of the selling moment on the H4 and daily chart. As the same for the overbought area.
See this recent example :
Gold reaches the overbought area at the beginning of September at the price of 1328. Next to several weeks, everyday price is higher and higher, reaching the 1550 level. Each instrument can be days, months, years in overbought mode. There are no rules about that. So if you want to find an overbought and oversold area – this is not enough to trigger a trade.
Overbought oversold and Pullback as problems in stocks trading market and forex trading market
The outcome of the trade significantly relates to the type of strategies used. When the right strategies are used consistently, the trader begins to familiarize themselves with the prerequisites for success. One of the main prerequisites for a successful trade is in-depth knowledge of overbought and oversold stocks. When a trader understands how overbought and oversold stocks affect a market, they can determine whether or not the next trade can be compelled without assistance and guidance. Assistance and guidance from brokers can be valuable tools when traders are beginning to learn. However, this tool may need to be updated as the trade continues.
Science research papers show many case studies that point that overbought and oversold zones do not have the same impact. Momentum strategies are appropriate for holding stocks in the long run in overbought zones, whereas contrarian strategies are proper for holding stocks in the short run, staying in oversold zones.
As a result of this, an ever-updating market requires stock investors to update their programs constantly. If the stock investor does not update as frequently as the market does, they risk losing their investment. Overbought and oversold stocks can potentially create a bigger gap in market value. Overbought and oversold stocks can determine the specific outcome of a situation. Therefore when a stock reaches more than 70 market points, it is given the title as overbought. When the stock drops below 70 market points, it is given the opposite title. The opposite tile is created from an initial loss. The initial loss is determined by the preexisting average values on the market. The preexisting average values have been calculated based on currency rates for each country involved in the trade. Brokers and traders from each country are encouraged to work together to find a viable solution for each trading group.
Internet tools and trading platforms, and indicators are also able to identify overbought and oversold stocks. An overbought or oversold stock is likely to generate more attention in the forex market than the home market. The main reason for this is the difference in pips. Certain markets are less accustomed to witnessing stock points; when a market is less accustomed to the outcome of stock points, they are less likely to complete an investment. When there is an overall low number of general investments, the risk is increased by 30% percent. When the market risk drops below a certain forex percentage, the number of investments is expected to increase in the opposite direction. Opposite investments for forex can be completed through a variety of strategies and techniques. The strategies and techniques used for each advancement can be seen with a variety of diagrams.
Identifying Overbought and Oversold Stocks and Forex pairs in Theory
There are a few things to look for when looking for the main indicators for oversold and overbought stock or forex pair. Programs such as MT4 offer highly effective and robust trading on the most common methods for forex trading and a thorough definition of both methods. When analyzing these types, there is a range of tips that can be applied. When looking for oversold and overbought stock or pair, the first tip is to indicate which type is negative and which type is positive. Oversold stock refers specifically to stock that is most frequently sold on the trading market. Overbought stock can be spotted on the market easily when using the right tools. Oversold stock can also be spotted on the market easily. When the stock rises above 70% percent, it is considered to be overbought. When the stock decreases below 70%, it is considered to be oversold. These figures are subject to change when they are used. Once the figures change, they can begin to accelerate at higher rates to accommodate market trends. This is only theory…
There are a few key ways to notice overbought and oversold stocks on the market. This strategy is essential when trying to decide if a particular stock is a wise investment. Viable trade entries rely upon this technique to ensure success. The two most common ways to notice and classify oversold stocks are known as the RSI and the stochastic indicator. The RSI allows stockholders to understand certain values which contribute to the overall success of the trade deal. This is very important when dealing with important trades, such as international deals. The stochastic indicator is a type of oscillator. RSI is commonly calculated based on loss and gain, while the stochastic indicator is more commonly calculated based on ranges of prices over a larger period of time.
Both of these unique market methods can be successfully applied to stocks on the market. These methods can be used together in certain scenarios. An experienced trader understands the best use for each type of method. As a result, each trader can use the method that will lead to a successful trade. When a stochastic reaches 100 points, this shows that the session closed. When the session points reach 100, that specifically shows that the highest price was reached. When the highest price is reached for each session, the normal protocol is to close the stock. When these unique techniques are used in tandem, the outcome is more likely to be positive. These tools should be used, along with other strategic market methods. When these tools are used in combination with others, they create trade entry market points. The tools can be used in addition to other proven strategies that work with the trading platform.
When you read top forex books, you can learn more about these in-depth tools and strategies. These in-depth tools help to prepare traders and allow them to excel in the market. These unique tools can be applied to many different trades to ensure they are successful. The stochastic and RSI methods are commonly misunderstood. This program seeks to clarify both methods in terms that are easy to understand. Compiling all the information into a three-hour interactive course has allowed traders to excel in their field. The stochastic and RSI methods need to be applied in real life to work. These methods are best learned through interactive courses. Traditional textbooks and online programs do not allow the trader to understand the application of these tools fully. When these methods are taught during an interactive course, they are fully understood. This will enable the trader to apply them to real-life scenarios on an everyday trading platform.
J. Welles developed two different methods. This is very important to note as he was the first to develop these two different trading methods. When he developed the stochastic and RSI method, he aimed to make them as applicable as possible. This was decided to ensure that each trader would value the information recorded through these methods. Both of the methods have similar features in common. They are both classified as viable ways to read, analyze, and reinvest in stock.
When the RSI methods indicate stock points, the system begins to create a cohesive balance with the other market methods. This means that when an RSI is judged in terms of points, it has the ability to relate to other methods within the same market space. For example, the RSI is judged based on points to gain insight into the stock patterns. Therefore if a forex market uses the same technology to analyze its markets, it will relate to the same level. Points can be used as a universal system, therefore promoting a common ground. When the common ground is created between different markets, it does not need to be converted. When trading stocks, there is often more than one type of currency used. Many currencies can be traded with one another as long as the currency exchange rate is established. There are preset currency exchange rates available for the stock market. These markets are significant to ensure each currency’s purpose is used to their capacity during trading deals.
The next aspect of trading involves creating new analytical methods. Analytical methods help to create a unique balance between market trends and market stocks. These new methods find a way to merge both pieces of information. By merging similar types of information, patterns are created. These patterns are then further analyzed to create a new stock strategy. This is the process of creating stock strategies. Individuals then adopt these strategies in the stock industry. If the strategies are proven to be successful, they are used long-term. When an idea or method works long term, it gains traction. For example, the stock market has seen many trends come and go. Certain long-term investment styles work better than others. For this reason, the styles that fit the best are kept while the ones that do not work are no longer practiced. This creates a balance when looking for the absolute best strategies to use. Strategies proven to work time and time again will be used long-term in the market and industry.
Evan, you trade forex or trade stocks. There is no statistical proof that buys from the bottom or sells from the top bring you profit. The market is always in some cycles. The H1 chart and H4 chart’s oversold area is maybe only the beginning of more selling pressure on the Daily and weekly chart, and maybe the next whole month, we will see new lower lows.
But if you are a short-time trader with defined stop loss, you can try to filter trades and try to buy from the bottom or sell from the top with tight stop loss and use the additional indicator and additional trigger.