News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Oil - US Crude
Mixed
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
Real Time News
  • Use this technical analysis pattern recognition skills test to sharpen your knowledge: https://t.co/Qgz89PTxnu https://t.co/TwrOBFgIwj
  • Gold prices were crushed this week as yields continued to climb. But with a big spot of support coming in, can buyers bring a bounce ahead of NFP? Get your market update from @JStanleyFX here: https://t.co/E1TTXVJGUm https://t.co/pD4TeAY3ZP
  • Get your snapshot update of the of market open and closing times for each major trading hub around the globe here: https://t.co/BgZLFljIhZ https://t.co/PiLYJDVvtY
  • What suits your style of trading stocks or commodities? Find out what are the differences in these two markets here: https://t.co/BnA07cMV0s https://t.co/453MLny2lu
  • The haven-linked US Dollar may be in a position to benefit in the short-run as economic recovery bets support longer-dated Treasury yields, making them more competitive with stocks. Get your market update from @ddubrovskyFX here: https://t.co/BickxlcuZi https://t.co/OdARp4Z1mh
  • The Dow Jones and Nasdaq 100 look to be on diverging technical paths as volatility spikes. Meanwhile, the S&P 500 teeters on support as it splits the difference between its sister indices. Get your market update from @PeterHanksFX here: https://t.co/0gULgIN2kw https://t.co/dzuxyjkXmx
  • What's the difference between leading and lagging indicators? Find out from here: https://t.co/vGx8HCagF5 https://t.co/yTYG7ote3R
  • The reflation trade is helping to push the oil-linked Canadian Dollar higher as the post-Covid economic outlook clears. The Loonie is reliant on the global economy’s recovery. Get your market update from @FxWestwater here: https://t.co/CYUiH0PCca https://t.co/my6clW7pxY
  • Struggling to define key levels? Floor-Trader Pivots assist traders in identifying areas in a chart where price is likely to approach and can be used to set appropriate targets, while effectively managing risk. Learn how to use this indicator here: https://t.co/Ye4m1FMKUW https://t.co/q8Ds7wYrKA
  • The non-farm payroll (NFP) figure is a key economic indicator for the United States economy. It is also referred to as the monthly market mover. Find out why it has been given this nickname here: https://t.co/yOUVEEqhc5 https://t.co/qtAmyhFU9A
What Do They Mean by Overbought and Oversold?

What Do They Mean by Overbought and Oversold?

Thomas Long, Course Instructor

Many times in trading we here the terms overbought and oversold. We hear an analyst state that the AUD/USD is overbought and due for a correction or that the EUR/CHF is oversold and due for a bounce. But how does one determine what is overbought and what is oversold and just what does that mean?

The terms are used to describe a market condition that is quantified by certain technical indicators. These indicators are called oscillators with two popular examples being the Stochastics and RSI. An oscillator is a commonly used momentum indicator that measures the current currency price compared to its historical price over a given time period. It looks to gauge the strength and momentum of a currency pair's move by measuring the degree by which a currency is overbought or oversold. The scale for the both indicators is 0 to 100. When Stochastics reaches a value of 80, the market is considered overbought and when Stochastics reaches a value of 20, the market is considered oversold. RSI uses the same scale of 0 to 100, but the value for overbought is 70, while the value for oversold is 30. The idea is when the market reaches either extreme, the chance for a reversal increases.

However, a reversal is not imminent.

Markets that are in a strong uptrend can remain overbought for long periods of time and markets that are in a strong downtrend can remain oversold for long periods of time. This is why these oscillators have limited value in trending markets. However, when the market is in a downtrend and the oscillator moves up to overbought, there is a much better chance of a reversal. On the flip side, when the market is in an uptrend and the oscillator moves down to oversold, there is also a good chance of a reversal.

Here is an example using the daily chart of the AUD/USD. Also plotted on the chart is a Slow Stochastics using values of 15,5,5. You can see that while the market is in an uptrend, the Stochastics will spend more time in an overbought condition and little time in the oversold condition. This is typical in a strong uptrending market. Also, when Stochastics moves down to an oversold condition, the market has a tendency to reverse. This is one way some traders use this tool to identify a buying opportunity. But the key here is that the market is in an uptrend. If the market was in a downtrend, the opposite would be true and those same traders would treat a move up to overbought as a selling opportunity. So while oscillators can be valuable in identifying trading opportunities, it is the direction of the trend and trading in that same direction that increases the reliability of these tools.

What Do They Mean by Overbought and Oversold?

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES