Real-time overbought and oversold market indicator
As is known, the formation of prices in any market is influenced by the magnitude of supply and demand; these factors determine the direction of the trend.
The more traders want to sell a product, the higher the likelihood of a price decline, and vice versa, 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 its maximum, the market enters a state of overbought, but if there are significantly more sell orders on the exchange, this state is called oversold.
For more information on various market conditions, read the article at https://time-forex.com/tehanaliz/perekuplenost-pereprodannost
After installing it on the chart, you can independently analyze the trend and draw conclusions about the market situation.
The second option is an online tool that displays pre-processed information on a specific currency pair, precious metals, or oil futures:
The informer displays overbought and oversold levels as a percentage, calculated based on the number of trades opened on the trading platform.
It's worth noting that BUY and SELL, in this case, aren't buy or sell recommendations, but rather indicate the number and volume of orders. Therefore, you need to decide whether to follow the mainstream traders or wait for a trend reversal.
Overbought and oversold indicator trading strategy based on trend reversal
The trading strategy using these levels is extremely simple: if the green BUY scale is filled more than 80%, it means that the number of buy transactions is close to the limit and there is a high probability of a downward trend :
This may serve as a signal to open sell trades, as the market is in an overbought state.
In the same case, when the red SELL line prevails, the indicator reports that the market is oversold and there is an excessive number of sell transactions.
The slightest event can cause a reversal and the formation of an upward trend , so in such a situation it is recommended to open buy transactions.
To avoid entering the market prematurely, you should monitor the trend of overbought/oversold assets and only open a position after the trend reverses.
Even more effective is to place a pending order, which will be triggered after the trend reverses.
The following indicator or another trend reversal indicator can be used as a signal filter
