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FOREX TRADING COURSE FOR BEGINNERS
a bottom was the bullish divergence during the spring. The S&P was making new lows into early
May, but the %D line held above the lows made during March.
OVERBOUGHT AND OVERSOLD ZONE
Markets seldom go straight in one direction without a pause or correction. When prices move up
and appear to be ready to correct, the market is called overbought. When prices have been
moving down and appear to be ready to rebound, the market is oversold. As a mathematical
representation of a market's overbought or oversold condition, stochastic tells you when prices
have gone too far in one direction.
Values above 75 (in the shaded area) indicate the overbought zone. Values below 25 (also
shaded) indicate the oversold zone. (Some traders prefer using 80 and 20 as the parameters for
overbought and oversold markets.) In sustained moves, stochastic values may remain in these
shaded areas for extended lengths of time.
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