Monday, July 03, 2006
Overbought/Oversold Overload
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The best way to understand overbought or oversold markets is to study the nature of supply and demand. At any given moment, a finite pool of buyers and sellers is available to take action on a particular stock. The trading activity of this crowd usually stays within fairly narrow boundaries.
It's important to note that overbought/oversold markets are relative to a trader's time frame. Some reversals are simple pullbacks in the underlying trend, while others represent major market turns. It is vitally important for traders to define their holding period before reacting to short-term price swings. Major profits will be lost by planning the trade in one time frame but executing it in another...
It's important to note that overbought/oversold markets are relative to a trader's time frame. Some reversals are simple pullbacks in the underlying trend, while others represent major market turns. It is vitally important for traders to define their holding period before reacting to short-term price swings. Major profits will be lost by planning the trade in one time frame but executing it in another...
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