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.

Free Trading Guides
EUR/USD
Mixed
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
GBP/USD
Bearish
USD/JPY
Bullish
Gold
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
Oil - US Crude
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
Bitcoin
Mixed
More View more
Real Time News
  • $EURUSD Daily Pivot Points: S3: 1.0966 S2: 1.1041 S1: 1.1085 R1: 1.116 R2: 1.119 R3: 1.1264 https://www.dailyfx.com/pivot-points?ref=SubNav?utm_source=Twitter&utm_medium=DFXGeneric&utm_campaign=twr
  • The British Pound’s relief rally may still have some room to run: volatility in the $GBP has dropped back to levels typically associated with periods of ‘positive developments’ in the #Brexit process. Get your market update from @CVecchioFX here:https://t.co/uzXRd8y4ck https://t.co/Nxf6opYgLd
  • Forex Update: As of 21:00, these are your best and worst performers based on the London trading schedule: 🇬🇧GBP: 1.31% 🇨🇦CAD: 0.12% 🇨🇭CHF: 0.09% 🇪🇺EUR: -0.09% 🇳🇿NZD: -0.11% 🇦🇺AUD: -0.48% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/z0x9cPG1TN
  • Commodities Update: As of 21:00, these are your best and worst performers based on the London trading schedule: Gold: 0.40% Silver: 0.09% Oil - US Crude: -0.47% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/fpuNos9jTO
  • RT @bbands: Most crypto currencies are at or near Bollinger Band Squeeze levels. Time to pay attention.
  • Spot FX Update: $EUR 1.1119 $JPY 109.3505 $GBP 1.3337 $CAD 1.3182 $CHF 0.9842
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 98.07%, while traders in France 40 are at opposite extremes with 78.85%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/rBitc06izt
  • Stocks in the #Dow Jones and S&P 500 are soaring alongside the Chinese Yuan as Beijing confirms trade negotiators have reached a partial deal in text with Washington. Get your market update from @RichDvorakFX here: https://t.co/v8Dy0Es2MY https://t.co/1f6xgxkXK0
  • Poll: Looking ahead to these final weeks of 2019, has the announced US-China phase 1 'deal' and UK election laying a clearer path for Brexit set global markets back on a course for sustained risk appetite (continued S&P 500 climb)?
  • @DailyFXTeam Something to note here is that PM Trudeau has pledged middle-class tax cuts (fiscal stimulus) which could dent #BoC easing bets. If his minority government can get it through, could offer a relief rally for #CAD as my majors-based index failed to breach support from 2018 $USDCAD https://t.co/oU1rEa67Wi
Interpreting Overbought and Oversold

Interpreting Overbought and Oversold

2012-08-14 22:00:00
Richard Krivo, Trading Instructor
Share:

Have you ever heard an analyst state something likethe AUDUSD is overbought and due for a correction or that the EURNZD is oversold and due for a bounce”? This may sound like pretty compelling information but what exactly does it mean?

These 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 Stochastics and RSI. An oscillator is a commonly used momentum indicator that measures the current price of a currency pair compared to its historical price over a given time period.

The scale for both of the indicators is 0 to 100. When Stochastics reaches the level of 80, the market is considered overbought and when Stochastics reaches the level 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, this does NOT mean that a reversal is 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 a somewhat 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. Conversely, when the market is in an uptrend and the oscillator moves down to oversold, there is also a better chance of a reversal.

Here is an example using the daily chart of the EURCAD. Also plotted on the chart is Slow Stochastics using values of 15,5,5.

\

Interpreting_Overbought_and_Oversold_body_overbought_oversold_8_14.png, Interpreting Overbought and Oversold

You can see that when the market is in adowntrend (lower highs and lower lows and price trading below the 200 SMA) Stochastics will spend more time in an oversold condition and less time in the overbought condition. This is typical in a strong downtrending market.

Also, when Stochastics moves up to an overbought condition, the market has a tendency to reverse and move back in the direction of the trend. This is one way that traders use this tool to identify a trading opportunity. The key here is that the market is in a downtrend and, as such, we would look for selling signals from Slow Stochastics. That signal would be the indicator moving down from above 80.

If the market was in an uptrend, the opposite would be true and we would treat a move down to oversold as a buying opportunity when Stochastics moved back above 20.

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.

New to the FX market? Save hours in figuring out what FOREX trading is all about.

Take this free 20 minute “New to FX” course presented by DailyFX Education.

In the course, you will learn about the basics of a FOREX transaction, what leverage is, and how to determine an appropriate amount of leverage for your trading.

Register HERE to start your FOREX trading now!

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

DISCLOSURES

News & Analysis at your fingertips.