Real-time market overbought and oversold indicator
As you know, the formation of prices in any market is influenced by the amount of supply and demand; it is these factors that determine the direction of the trend.
The more trading participants want to sell, the higher the probability of a price decrease, and conversely, a large number of people wanting to buy an asset increases the likelihood of an upward trend.
When the number of people willing to buy reaches a maximum, the market enters an overbought state, but if there is a significantly larger number of sell orders on the exchange, then this state is called oversold.
Read more about the various market conditions in the article at - https://time-forex.com/tehanaliz/perekuplenost-pereprodannost
After installing it on the chart, you independently analyze the trend and draw conclusions about the market situation.
The second option is an online tool that displays already processed information on a specific currency pair, precious metals or oil futures:
The informer shows the levels of overbought and oversold as a percentage; the calculation is made based on the number of transactions opened in the trading platform.
It should be noted that BUY and SELL, in this case, are not recommendations to buy or sell, but show the number and volume of orders. Therefore, you need to choose whether to follow the bulk of traders or wait for the trend to reverse.
Trading strategy indicator of overbought and oversold based on trend reversal
The trading strategy using these levels is as simple as possible; if the green BUY scale is filled to more than 80%, it means that the number of buy transactions is close to the limit value and there is a high probability of a downtrend :
This can serve as a signal to open sell transactions, since the market is in an overbought state.
In the same case, when the red jackal SELL prevails, the indicator reports that the market is oversold, an excessive number of sell transactions.
The slightest event can cause a reversal and the formation of an uptrend , so in such a situation it is recommended to open buy transactions.
In order not to enter the market ahead of time, you should observe the trend in overbought/oversold assets and only after a trend reversal open a position.
And it’s even more effective to place a pending order, which will work after the trend reverses.
the following indicator or another trend reversal indicator as a signal filter