Why I love Overbought and Oversold Conditions

Why I love Overbought and Oversold Conditions

There are times when you start rubbing your hands together and stare at the computer screen with a sinister look. If I had a handlebar mustache I would be twirling it at the corners.

There are times when you start rubbing your hands together and stare at the computer screen with a sinister look. If I had a handlebar mustache I would be twirling it at the corners. Whether you trade stocks or foreign currency, this week has created overbought and oversold conditions for everyone. I personally love the forex markets for the volatility that gives me trading opportunities. And I never take the power of leverage and how it can giveth (and taketh away).

Oversold conditions have been the focus of my trading lately, and I continue my learning and maturation as a young trader. I pride myself with not overtrading during times when my signals are not matching up with the market. I while back I posted about how to recover from a bad trade. In this post I highlighted how you should not overtrade just to make up for a bad trade. Once you have learned this, then you will also learn that if the market is too crazy for you, then you should also stay out. So over the last few weeks, I didn’t see anything that I liked. I therefore did not trade. Chalk one up to growing as a trader.

But now the stars are aligning and I have found a few trades already this week. I just posted about the oversold conditions on the AUDJPY and I was able to bag 150+ pips much faster than I anticipated. That was a great oversold setup, and this week with the resurgence of the US stock market, many of these pairs are going to be making a comeback.

In the past I generally use the RSI 21 as an indicator of oversold conditions on the 1hr charts. But as we all know if that were easy everyone would be a great forex trader. I love how new traders use want to use every indicator to call their trades when I know that most of top traders in the world are minimizing this and going with only a few. I find that every trade I use at least takes a look at the RSI, because big mistakes can be made when entering a trade in the wrong direction if the RSI is in disagreement.

So the take home message here is that the RSI is a good start to tell when currencies are overbought or oversold, and could be an indicator that you add to your repertoire; even if it’s only a glance. Good luck.

So where should I begin? First of all, I am not a professional analyst, I just love to talk investing and have been at it for a few years. I started swing trading my freshman year in college and continued that until graduation with a good bit of success. During my Ph.D. training, I started learning and trading forex, a hobby of mine that is still in place today. I have built a strategy based solely on technical indicators that I programmed into MetaTrader... More