Over Bought/Sold oscillators when should they be taken seriously?

[Grey1]

Over Bought/Sold oscillators when should they be taken seriously?
When should we take a signal from an OB /OS indicator such as RSI, CCI , seriously ?



if you can objectively find an answer for this question then you are one step ahead of others.. No doubt about it..

Comments welcome ?

 

[ianp]

Hi Grey1,

How about when the price is near is outer
2SD/VWAP band ?

ian

 

[BBB]

Not for my style of trading. They don't tell me anything that my eye's dont.

Oscillators are probably better used in trading ranges, but again, the form of price bars and surrounding s/r can tell me when price is due to correct.

Maybe they are better on 1 min charts and tick charts where there is less meaning in o/h/l/c.

 

[bonsai]

not for me
I have seen them stay OB or OS for hours and sometimes days.
on their own, I know of now reliable way of picking a real turn.

they all (usually) have a fixed time base. But of course, the market
doesnt give a whatsit about your time base !

 

[Trader333]

Hmm,

I have to disagree with both BBB and Bonsai on this one. I have found one pattern to be extremely reliable when combined with other factors. I wont say what just yet though as I am sure others also have answers.


Paul

 

[bonsai]

I assumed from the question that it had to be judged as a
stand alone indicator.

 

[TheBramble]

The movement INTO OB or OS territory can be useful in conjunction with other indicators.

What they do while they're in OB/OS I don't really care (in that I've found no correlation with any price movement).

As with many (most?) TA indicators I suspect they work because other traders think they work - too.

 

[BlueChip Trader]

Only useful for range bound stocks and when they show divergence (+ve or -ve), especially with volume.

I find them more useful on higher time frame and 21 periods settings which seems to take out some of the market noise. However, I've learnt not to use them as stand alone indicator.

 

[Grey1]

The term OB and OS in stock market is a relative term ..If these two terms where absolute then there would not be any market..

We say 6 is greater than 5 with zero being the bench mark .. For numbers to have a meaning we need to have a bench mark ..

Jane is taller than Julie
Sara is taller than Tracy

who is the tallest ? jane or Sara

you would not be able to answer me because I have not given you a bench mark ..

During trading day , traders use their RSI or CCI without reference to a meaningful bench mark ... Unless a bench mark is avaiable they are simply hoping and guessing ..

VWAP is a meaningful bench mark to gauge your trades.. To go long use your OB/OS indicator when the current price is below VWAP .. How far below?

Around low of the day ( for long )


PS:- what if you went to a blind date with jane and found out she was only 1.20 tall ?

 

[bonsai]

lol
Grey, I think you may be 'mixing your metaphors'


using OB/OS you are using 'secondary' info to decide to take them seriously.

But with MA crossovers, you make no attempt to refer to
other 'secondary' info.

Or have I missed some nuance ?

 

[Grey1]

Bonsai,

Secondary info ? can you explain please ..



Thanks

 

[bonsai]

Over Bought/Sold oscillators when should they be taken seriously?

Answer

use your OB/OS indicator when the current price is below VWAP .

In other words, the OB/OS indicator in your example relies on the state of VWAP

But you didn't seem to give the same test with MA's
(i.e confirmation from another source)

?

(not that I diasagree with you about MA crossovers,btw)

edit
taking a hypothetical example

what if there is an MA crossover when Current price is below Vwap ?

 

[Grey1]

Bonsai,

got ya,, Thanks,,

I see market as a series of cycles all unforling in different time frames.. When they unfold we see trends..

Tricky and delicate ..


Just saw your added comments :--

And to reply to your " what if " question ?

Most MAs are laggers .. Most oscillators are leaders.. ( hence I have no time for laggers)

we should be one step ahead ,, This is why I see the market as a series of cycles...

 

[bonsai]

I much prefer that argument

2 MA's are laggards, that's why they aren't satifactory.

(unfortunately they can often be easier to interpret)

 

[ChartMan]

During trading day , traders use their RSI or CCI without reference to a meaningful bench mark ... Unless a bench mark is avaiable they are simply hoping and guessing ..

No. Intraday LOD/HOD on RSI can and does provide a bechmark for later in the day. Therefore, if LOD/HOD = OS/ OB, ( an assumption) then one has benchmark for evaluating later values.Forget yesterday.

 

[BBB]

Sorry, CM, I dont get that last bit. If we forget yesterday, then why not forget 1 hour ago?

I have difficulty even understanding the notion of ob/os. What I may have considered expensive 30 mins ago, often looks cheap at current prices. So are we ob? The indicator says so! Tomorrow, current prices may well look cheap. Are we ob? Who knows? The RSI is diverging so we must be! I'm sure we all know what unfolds.

The only concept of ob/os I can get my little head around is the definition given by Bollinger Bands of lows/highs inside/outside the bands. This explains the term in volatility which to me has more meaning, even though it is based around a MA.

Surely we are ob when we run out of buyers. We know we are ob because price corrects to levels where more buyers step in. I think all these flashy indicators add too much complexity to the simple and basic interaction of two parties agreeing on a price. This isn't rocket science, it's human perception and emotions.

 

[ChartMan]

Surely we are ob when we run out of buyers. We know we are ob because price corrects to levels where more buyers step in. I think all these flashy indicators add too much complexity to the simple and basic interaction of two parties agreeing on a price.

V true.+ Flashy indicators have their uses, from time to time.

 

[Trader333]

BBB,

Surely we are ob when we run out of buyers. We know we are ob because price corrects to levels where more buyers step in.

So how would you trade this ? The reason I ask is that by your own definition when more buyers step in, how do you know whether they will sustain the buying or it is just a temporary situation ?


Paul

 

[BBB]

Paul,

Thats a good question. Can we re-phrase 'temporary situation' to an 'engineered market'. What I imply is that movers may want to give the impression that buying has resumed to lull in more bids. These new buyers are 'sheep' (as we called them on the floor). They are about to get slaughtered! The movers sell into their bids. We all know the rest. Sometimes however, as you suggest, the move will be real.

How can we trade this? First I admit I have no Crystal ball and can't tell if any bidding/move is real or engineered. I accept that and do not try and convince myself or others of anything else. Honesty is key to my style of trading.

Bid when the bidding resumes, but move your stop to your entry asap. Get out as soon as the market corrects or goes back to your entry. Be especially weary of corrections if they occur before the old high. If price takes the old high, lock in some profit. If it continues we are winners. If the biiding is engineered, we break even or may lose costs.

This is how I see markets moving. No indicator is ever going to tell you if you are in a manipulated move or a real move. Some may be able to suggest, but there are no certainties in this game as we all know. Only you can do that with your eyes and the FACTS of what price is doing.

Thats how I interpret the markets. Each to his own I guess.

 

[BBB]

For those who are interested, this style of trading results in 25% winners, 25% losers, 50% breakeven.

The losers rarely lose as much as the initial risk - I'm out way before then. 50% of winners make at least twice the initial risk. The other 50% are a fairly even distribution either side - with perhaps a skew to the lesser side of 2 x risk.

Some would find this style of trading uneasy as a lot of trades break even (effort = reward fallacy). It suits me though. It works in any time frame so I dont have to become a 'spread monkey' as I used to be on the floor. I've taken my knowledge of how people play the markets and tried to do something profitable with it.