Before we begin to look at what are the best indicators for determining overbought/oversold conditions and how to use them, let’s first define what overbought/oversold means.
Overbought/Oversold Defined
I define an overbought condition as a situation in which the price level of a currency pair has risen to such an extent that it is overvalued and therefore the likelihood of a pullback is very high. The opposite is true in oversold conditions where price action has fallen to such a level as to justify new buying opportunities due to its’ current undervalued state. In simpler terms, we are dealing with an extreme level in price action that as a result we should therefore see a corrective move take place.
What’s going on in the markets
Continue reading–>Overbought/Oversold: Using RSI, Stochastic, and Moving Average Envelopes
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