Monday, February 13, 2012

Return from Holiday

I had taken time off for almost three weeks. I am glad to be back at my trading desk. This also gives me the opportunity to re-start blogging!

My grateful thanks to all friends who conveyed their best wishes on my son's marriage.

Overbought markets can remain overbought for long periods of time.

The first issue is: what defines overbought? The easiest definition is to use a bounded momentum indicator which has overbought and oversold levels. Examples of such indicators include the RSI, Stochastics & CCI. When the indicator value goes above the predetermined overbought value, the security is considered overbought.

What I mentioned above is the theory. In actual practice, markets in trading ranges can be considered overbought and oversold. Markets in trends are just that - markets in trend. If a market is in an uptrend then it is supposed to go up. Where is the question of being overbought?

Once the trader decides that a market is in an uptrend, overbought levels in an indicator confirm the strength of the trend. if the indicator becomes overbought and prices keep on moving up, the message is: this is a strong trend.

Summary:

The concept of overbought and oversold markets is valid in trading ranges. Once a market is in a trend, overbought indicator readings is actually a confirmation of the trend.

6 comments:

Neeraj Malhotra said...

Congratulations Sir for your Son's Marriage.

And thanks for a wonderful post as always.

Regards,
Neeraj

Akash said...

With all my heart, I wish you a blissful conjugal life For Your Sun"S Marriage..

shruti said...

Sir, is correction possible in a market that's in trend ? or even that is for trading markets..

sanraj said...

I must thanks yor for your kind advice you are giving to us , which is of immense value.

It is always great to see a few men of qualities such as honesty and forthrightness. If we are watching you on TV sir , it is because we fid that in you and your concern for small investors probably make you give the warning signs early enough for all to benefit.

You have clearly said the best option was to go with the flow and from 5100 to 5500 it was just that.Hope all your readers and followers have benefited.

Thanks a ton!!

Ganesh Shenoy said...

Welcome Back Sir!!! And a very happy married life to you Son and my best wishes Sir :)

Rajveer said...

Please accept my Heartiest felicitations on your Son's marriage. Marriage of children is most happy day as well as cherished dream of every parent. May God shower his choicest blessings upon your son and daughter-in-law. I wish them a bright and eventful future.