I have a pretty good understanding of trading Oversold Indicators but have been getting into Overbought trading on the short side recently. My question is from a swing trading (shorter term) stand point. When I am looking at creating a watch list based on overbought conditions (RSI and Stochastics) would it be wise to focus on currently up trending stocks that are overbought, consolidating stocks breaking down, or down trending stocks that have had a recent rally into overbought territory?
I understand there is no Holy Grail or perfect way to trade overbought but really am looking for another opinion or idea. Thanks in advance.
Trading indicators are best used along with money management and good risk control, using tesnical indicators alone will not enable you to ne a successful trader, the market is just too random
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I think you may be better off thinking in terms of risk first. Betting on a change in trend is riskier than one already in a trend. And where you have to place your stop will quantify the amount you risk. But then I have trouble jumping in the middle of a trend, or wondering whether the trend has changed at such a late entry.
Oversold indicators give too many false signals for me. I prefer a break in the trend then a Fibonacci retracement.
Get on a simulator and test your theories; develop a plan and test it.
http://simulator.investopedia.com/